Since 2015, policy makers and EB-5 stakeholders have negotiated and debated draft legislation regarding long-term EB-5 reauthorization and reform. On Wednesday March 14, 2018, the latest rendition of draft legislative text was circulated. While this had the distinct feeling of “we’ve been here before”, the considerations around timing and looming EB-5 regulations by the Department of Homeland Security provided a unique set of circumstances the industry has not seen before.
Unfortunately, the draft EB-5 legislation did not garner enough support to be included on the omnibus spending bill. The reason this is significant is because at this point, in order for proposed EB-5 legislation to pass, it must be included on ‘must-pass legislation’ — such as the omnibus spending bill. The core function of the omnibus bill is to fund the U.S. government through the rest of this fiscal year, which ends on September 30, 2018. There are limited must-pass legislative vehicles on the horizon and with 2018 midterm elections on the horizon, the political landscape will become increasingly more partisan making it difficult to pass new legislation, especially legislation with a program tied to immigration.
While the House text for the omnibus spending bill did not include the EB-5 draft legislation, it did include a clean extension of the current EB-5 regional center program.
Why does it matter?
The Continuing Appropriations Act (aka the CR), authorizes the EB-5 regional center program and U.S. government funding until March 23, 2018. Without further action on, or before the end of day on March 23 the EB-5 regional center program would lapse.
Without long-term EB-5 reform, the larger concern is the real possibility that the Department of Homeland Security will enact its proposed EB-5 reform regulations. Earlier this year, the final action date for the promulgation of new EB-5 regulations was moved forward to February, 2018, meaning the regulations could be enacted at any time. Among other changes, the DHS EB-5 regulations dramatically increases the minimum investment levels to $1,800,000 or $1,350,000 for TEA projects.
What was in the draft legislation?
- Minimum investment amounts:
- $925,000 for projects located in designated priority urban, rural, infrastructure, Base Realignment and Closure (BRAC) or U.S. territory locations.
- 120 day (4 month) freeze on filings following the date of enactment (potentially as early as March 23)
- Including new I-526 filings; and I-924 filings both for new designations and amendments; and project exemplar filings.
- Visa Set Asides:
- 1,450 visas for rural,
- 1,450 visas for priority urban investments, and
- 200 visas for infrastructure projects, which require the Job Creating Entity to be a governmental entity
- Job creation requirements:
- 12 jobs per investor for projects in non-designated areas, and
- 9 jobs per investor for rural, priority urban, U.S territories, and projects located within a BRAC
- Key definitions:
- Priority Urban Investment Area – two of the following three tests must be met: (I) unemployment rate above 150% of the national average; (II) poverty rate over 30%; (III) Median Family Income (MFI) under 60% of greater of statewide or MSA MFI. Also, each census tract being used in the analysis must meet the requirement, therefore, the census tract that project is located in must meet the requirement.
- Rural Area – Is outside boundary of any city or town having a population of 20,000 or more and either (I) outside of a Metropolitan Statistical Area (MSA); (II) Within a county in a MSA with a population density of less than 225 people per square mile; or (III) within a tract greater than 100 square miles with population density of less than 100 people per square mile.
- Regional center program reauthorized through September 30, 2023
- Enactment of the Employment Creation Visa Integrity Fee, an annual regional center fee of $20,000 (or $10,000 for regional centers with less than 20 investors in the preceding fiscal year).
- Increased integrity and compliance measures, along with additional reporting requirements and site visits from USCIS
What is next?
Back to the drawing board. The EB-5 industry is hobbled by lack of a long-term renewal, needed reform and retrogression. While the draft bill was not perfect and did not satisfy all stakeholders (which is the classic definition of compromise), industry leaders are now faced with another attempt to get the stakeholders on the same page before going back to the Hill to attempt another long-term solution, but likely after the midterm elections. This effort will be compounded as it will likely come in the wake of managing through new regulations from DHS that will no doubt make EB-5 unaffordable for many would-be investors.
Baker Tilly will continue to closely monitor the legislative developments and provide analysis and guidance on the implications for projects, regional centers, and investors if new EB-5 legislation is enacted. Please contact us at email@example.com with any questions.