We’re waiting on the fate of draft EB-5 regulations published in the Federal Register in January 2017, with a public comment period that ended in April 2017. This post briefly reviews the proposed rules, considers the probability that they will be finalized any time soon, and distills insights from the 323 public comments that I’ve now read. The post is long because the topic is important. I expect EB-5 regulations to be finalized — in my lifetime, even — and the regulation comments include valuable contributions to the debate around EB5 program changes.
Content of Proposed Regulations
NPRM #0006: The Notice of Proposed Rule-making titled EB-5 Investor Program Modernization (DHS Docket No. USCIS 2016-0006) proposed new EB-5 regulations on investor priority dates, increases to minimum investment amounts, changes to targeted employment area definitions and designations, and technical changes including I-829 adjustments. (My January 17 post summarized the provisions.)
ANPRM #0008: The Advance Notice of Proposed Rulemaking titled EB-5 Immigrant Investor Regional Center Program (Docket No. USCIS-2016-0008) is a preliminary document that solicited stakeholder input to help formulate new rules for regional center designation, the exemplar filing process, continued regional center participation, and regional center termination.
Future of Proposed Regulations
Final EB-5 regulations could take effect anywhere from 30 days from now (if a final rule were published today in the Federal Register) to never. (If you’re interested in how the process works, see A Guide to the Rulemaking Process prepared by the Office of the Federal Register.) Here are factors that I know of that could affect timing in this case.
DHS can be very slow. For example, the regulation dealing with EB-5 petitions approved 1995-1998 (RIN 1615-AA90) first appeared as a proposed rule in 2003, the Notice of Proposed Rulemaking was published in the October 2011 Federal Register, the public comment period closed in November 2011, and as of May 2017 the rule has not yet been finalized.
Most commenters on the NPRM reminded DHS that Congress has been working to deal with the very same issues through legislation, and that legislation should proceed regulations. Therefore regulations should be withdrawn or put on hold to allow Congress to act. Several speakers at the House Judiciary Committee Hearing on the NPRM supported the point that policy-making belongs to Congress, and it should act first.
On the other hand, no one at the House Hearing spoke in favor of cancelling the EB-5 regulations, even if they did come out under Obama, and four influential Congressmen behind EB-5 reform legislation (Goodlatte, Grassley, Conyers, and Leahy) collaborated to submit a comment on the NPRM strongly urging DHS to finalize it, at least with respect to minimum investment amounts. Senator Grassley personally encouraged DHS Secretary John Kelly in January to finalize the EB-5 regulations, and called on him again on May 11 to expedite the regulations. UPDATE: DHS Director nominee Lee Cissna committed on May 24 in his confirmation hearing to finalize EB-5 reform.
On May 8, the New York Times quoted a White House statement that the administration “is evaluating wholesale reform of the EB-5 program to ensure that the program is used as intended and that investment is being spread to all areas of the country.” Supporting drastic reform regulations could be a strategic move for President Trump: bombing the EB-5 program would conveniently show that he’s truly not in the pocket of any tangentially-related EB-5 promoters. On the other hand, the proposed regulations would inhibit job creation and impose excessive costs on business – points Trump has committed to avoid in regulations.
This Congress has so far officially introduced only one EB-5 bill, but we’ve seen a couple discussion drafts that might emerge as live legislative options.
The rule-making process requires DHS to review and respond to public comments. I took a long time just to read all the comments and write this post, and foresee that the final rule will be tough and time-consuming for DHS to write. If DHS takes the good feedback seriously, it will likely come up with another version that’s sufficiently different to justify a second posting and comment period.
Review of Public Comments
The 290 public comments on NPRM #0006 can be roughly divided as follows: brief personal pleas from EB-5 investors (61%), analysis and experience from EB-5 project people operating outside Tier I cities (14%), lengthy and sophisticated comments from the top few big-city regional centers and their surrogates (6%), brief comments on behalf of direct EB-5 projects (6%), feedback from immigration lawyers and other service providers (10%), rants about damn furriners (3%), and comments from Congress (0.3%). I summarize common themes in these groups, and then link to specific comments of interest.
Feedback from Congress
There is only one comment from Congress – a letter signed by Bob Goodlatte and John Conyers from the House and Charles Grassley and Patrick Leahy from the Senate – but I lead with this because it’s so significant and seems to have passed unremarked. These Congressmen have spearheaded EB-5 reform legislation, and their comment reveals their good intentions and dangerous misunderstanding of how EB-5 works. They identify real problems but go very wrong in suggesting solutions. We particularly need to respond to their counterproductive ideas about job creation and retroactivity. Clearly they haven’t realized that their suggestions would have the practical effect of gutting small, rural, and direct EB-5 projects while lining the pockets of mega-project developers with superfluous cash. (A post with more on this soon – and staffers if you’re reading this, please call me and I will explain.) While most other public comments ask DHS to wait for Congress to act, these influential Congressmen “strongly urge” DHS to finalize EB-5 regulations, particularly with respect to minimum investment amounts, and also propose additional items that they’d like to see DHS address via regulation (visa set-asides for TEAS, limits on job creation, mandatory I-829 interviews, limits on regional center rental and sale, and limits on job counts).
Feedback from EB-5 Investors
The many comments from investors are generally short and sweet, bringing little data and evidence but a fair amount of appealing personal experience. The dominant message – repeated across most investor comments – is that EB-5 visa backlog problems need to be addressed before any other reforms can be meaningful. Investors from China express distress at finding themselves in a three-to-ten-year waiting line just to get conditional residence, depending on when they invested, and the many problems that flow from that – children aging out and separating families, the high risk of material change, the problem of asynchronous exit strategies, the difficulty of managing enterprises and overseeing investments from overseas, and so on. Current investors don’t see the program remaining viable for new investment if the required minimum investment more than triples plus the backlog problems aren’t solved. Investors were also united in supporting (and suggesting ways to expand and strengthen) priority date protection, and opposing any retroactive application of new rules. Many proposed granting parole after I-526 filing, and allowing EB-5 investors who have waited more than two years since I-526 approval to file I-829 once a visa becomes available. The comments impressed me with the thought that EB-5 investors need an association that allows them to organize, collaborate, and advocate for their own interests. Past investors are important stakeholders, with distinct concerns and a strong interest in influencing debates around the future of the EB-5 program. But here they are represented by scattered 100-word comments with doubtful punctuation while regional center representatives present sharp 10,000-word essays bristling with footnotes. I see evidence of group coordination in some investor comments, and encourage people to contact me if they have any groups that they’d like publicized.
Feedback from Regional Centers and Project Developers
On the project side, nearly everyone opposes the DHS proposals regarding investment amount (a one-stage 180% increase to the standard investment amount and 270% increase to the TEA investment amount). Commenters argue that this abrupt and dramatic increase would quell demand, make the US investor visa program uncompetitive, reduce the total job creation and investment impact of the EB-5 program, be tough on small projects, and dampen the incentive to invest in a TEA. They make supply-demand arguments (suggesting that any inflation-based increase should be dated from 2008 or so when demand for the program took off, not from the 1990s when it was barely used), propose linking investment amount calculation to factors such as exchange value of the dollar and household income rather than merely considering the Consumer Price Index, encourage DHS to consider Congressional intent as expressed in recent proposed legislation, not just as expressed in 1992, point out the high risks that distinguish the US program from others, and advocate for a phased-in approach and protection for past investors and midstream offerings.
When it comes to Targeted Employment Areas definitions, and the incentive to invest in a TEA, big-city and small-city/rural regional centers part ways. Comments filed on behalf of the big urban regional centers advocate for large TEA areas based on commuting patterns (allowing for TEA projects located at a distance from where unemployed people live) and for a narrow differential between the TEA and non-TEA investment threshold (minimizing the TEA incentive). Comments filed on behalf of regional centers active outside of major cities were generally supportive of TEA changes proposed by the regulations (which would require TEA projects to locate in/very near high-employment areas) and advocate for a meaningful TEA incentive/investment differential. For example Related New York City Metro Regional Center suggests that TEAs should allow for unlimited combinations of areas within an MSA (and with no requirement that the constituent areas be contiguous), and that TEA investment should be only $50,000 cheaper than non-TEA investment. By contrast, Pine State Regional Center (Arkansas, Missouri, Tennessee) supports restricting TEA definitions and significantly incentivizing TEA investment (for example taking the $800,000/$1.2M investment levels proposed last year in legislation, which would be a $400,000 differential). The two points of view were approximately balanced in comments on the regulations (with more voices on the small/rural side and stronger voices on the large urban side), though I note that the big players are winning lobbying (each successive draft of proposed legislation has progressively bargained down the investment differential/incentive to invest in a TEA).
Nearly every commenter (except for a couple thinkers who have never experienced USCIS processing) agrees that DHS absolutely must not enter the business of issuing case-by-case TEA determinations. USCIS designations would be needless assuming that TEA requirements are clarified and codified, senseless considering USCIS’s (lack of) expertise, and disastrous considering USCIS’s existing workload and processing times. These arguments were made very strongly, many times. If the final rule persists in assigning TEA designation to USCIS rather than creating an automated process or giving unambiguous guidelines to state agencies, then we’ll know that DHS just didn’t read the comments. I hope that Congressional staffers working on EB-5 would read these comments as well, for the case against individualized TEA designation by USCIS is extremely clear and compelling.
Many of the EB-5 industry commenters joined investors in arguing for I-526 priority date protection, for measures that would ease the visa backlog by not counting derivatives or recapturing unused visas, for protecting investors who already filed under old rules, and for palliative measures in light of the backlog such as parole after I-526 approval and age-out protection and priority date protection.
The ANPRM #0008, being a just preliminary notice, got little attention and feedback – sadly, because it did ask important questions. Comments that were submitted particularly focused on the proposal to require exemplar approval prior to I-526 filing (granting that this is a good idea only if the processing time can be short, and unworkable otherwise).
A sampling of noteworthy comments
The public comments are useful to help understand what DHS sees as it prepares a final rule, and also as a source for ideas worth discussing and support for arguments that you may want to make yourself. I’ve assembled a short list of comments that make particularly interesting or characteristic points, or that make points in a particularly effective way, with compelling language and evidence.
The case for TEA rules that don’t disadvantage urban projects: Jeffrey Carr (gives rationale for TEAs based on commuting patterns, unlimited areas within MSAs, census block groups, and NMTC criteria), EB-5 Investment Coalition (proposes a “9-Step Process” to designate areas that include “Residence Tracts” linked to “Workplace Tracts”), Angelique Brunner and David Morris (propose expanding provision to encompass existing government-designated economic development zones).
The case for TEA rules that significantly incentivize projects outside prosperous urban areas: Urban Manufacturing Alliance and Mount Snow (for distressed urban and rural areas), Invest Atlanta (economic development agency perspective), Gary Friedland (considering the purpose to stimulate investment in undercapitalized areas), IIUSA (for fairness to a broad base of EB-5 users)
The case for a different approach to calculating EB-5 investment amount increases: Auray Capital (considers data on currency exchange rates, competitor programs, market threats, and the population of potential investors), Jim Nail, AISA (points out why an inflation-correction approach, if used, should calculate from the TEA investment amount), Centurion American Development (consider investment risk and return, and costs to the regional center), Suman Guduru (too high would discourage startups and entrepreneurs), Deputy Mayor of Columbus, Indiana (too high would discourage investment in small cities), Alexandre Carvalho (too high would discourage investors).
The case against delegating TEA designation to USCIS: Nearly every comment, but for example Elliot Winer and Kimberly Atteberry (technical reasons); Stetson Law and Chanticleer Holdings (positive benefits of state involvement)
The case for broadening I-526 priority date protections: Green and Spiegel and AILA and Penny Zhang (for priority date protection not only contingent on I-526 approval), Meisheng King (for the option of assigning priority date to children), Golden Southern Chicken (priority date protection would allow for better business decisions), Fei Zhiqiang (priority date protection would free investors to act on suspicions of malfeasance)
The case against priority date protections: US Chamber of Commerce (could encourage investors to abandon projects that no longer qualify as TEAs), Pacific ProPartners (would further swell the visa waiting line and undermine forecasts)
The case for taking EB-5 visa backlog problems seriously: ZeMing Gao and Shiting Yi (and for those unfamiliar with the backlog problems, here’s my blog post with as much as I know)
The case that DHS has and should use the power to modify EB-5 visa availability: EB-5 Investment Coalition (the arguments for eliminating derivatives from the visa count and recapturing unused visas)
The case for and against making EB-5 program changes retroactive: Goodlatte/Grassley/Conyers/Leahy (for retroactive application), Fragomen (against). Industry response would have been stronger had we realized retroactivity could even be on the table for regulations. I will write more in response to the comment from Congress, and hope others will as well. Many investor comments speak against retroactivity, but without marshaling sources and evidence.
The case for a revised material change policy: American Immigration Lawyers Association (EB-5 material change policy as currently stated can make an EB-5 petition un-approvable even though it was eligible at the time of filing and remains eligible after an interim material change. AILA digs into the law and proposes a more appropriate material change rule that would only focus on changes that involve EB-5 credibility requirements, and only on changes that make a petition ineligible. The argument seems sensible and could solve severe current problems in EB-5 adjudication. I hope more people read, discuss, and promote it.)
The case against requiring exemplar approval without a strictly-controlled processing time: Suzanne Lazicki (explaining the process and timing issues), Jillian O-Brien (providing examples). It’s so important for USCIS to understand the practical difference between a requirement to file and a requirement to file plus wait for approval.
Thoughts on designation, monitoring, and oversight requirements for regional centers: EB5 Securities Roundtable and Citizen for Responsible Regulation