On Aug 14 2015 by H. Ronald Klasko

Update on EB-5 Legislation

The EB-5 Reform and Integrity Act of 2022 brought many changes to the EB-5 program. For the latest information, please click here.

The number of days between now and September 30 are diminishing. Meanwhile, the U.S. Congress is in recess until after Labor Day. There are scarcely double digit number of days in which the Congress will be in session until September 30, and the legislative agenda for the remainder of the fiscal year is truly daunting.

Against this background, I would like to share the perspectives that I shared on my latest trip to China from which I just returned. These perspectives were shared on Chinese television and in interviews with Chinese print and on-line media, as well as at various seminars.

My perspectives are based on more than sheer guess work. They are based on personal meetings, including a meeting with House Judiciary Committee Chairman Bob Goodlatte, as well as reports from my clients and legislative lobbyists with whom I am working. While the information I am sharing is the latest information available, I must make clear that the landscape is regularly changing; and neither I nor anyone else can state with any assurance what will actually happen between now and September 30. The only thing certain is that the prospects are uncertain.

With that said, I would like to suggest the following:

  • The chances of the regional center EB-5 program being extended are exceedingly high. There are no significant forces who are attempting to have the program sunset. However, it is very unlikely that the extension will take place more than a handful of days before September 30, and it is not inconceivable that it could take place after September 30.
  • The length of extension is uncertain, although 3 years is my best prognostication. I do not think that a permanent extension is realistic at this time. Five years has been discussed, but it would take us to the eve of the 2020 presidential election. It is not inconceivable that the extension could be for 12 months or less if no agreement can be reached on key points by September 30. Again, 12 months would expire one month before the presidential election, which makes it an unlikely result. The leaders in Congress understand that a short term extension would do damage to the EB-5 program by creating uncertainty and lack of confidence by the government in the program.
  • It is unlikely that the Grassley-Leahy Senate Bill 1501 will be the lead vehicle for the extender bill that ultimately is voted on in Congress. Many provisions of that bill have been the subject of great controversy, and the drafters of the bill have acknowledged that many of the provisions need rethinking. Rather, it is most likely that the lead bill has not yet been introduced. It most certainly will not be the Lofgren-Gutierrez Bill that was recently introduced in the House of Representatives. Rather, it is very likely to be a bill to be introduced by Republican Congressman Issa, with co-sponsorship by House Judiciary Committee Chair Goodlatte and probably some Democratic co-sponsorship (Congressman Polis and Congresswoman Lofgren being the most likely candidates). The strategy will be to have the bill be noncontroversial enough and streamlined enough that it will stand a reasonably good chance of receiving unanimous consent in both the House and the Senate. This would be somewhere between unlikely and impossible with a bill of the size and scope of the Grassley-Leahy Bill. In order to accomplish this result, the drafters of the House bill are working with key members in the Senate to ensure that any bill that passes in the House will likely pass the Senate by unanimous consent.
  • All sides are motivated to pass a bill that can avoid the Committee structure and go directly to the floor by September 30. All sides realize that such a bill could not possibly address all of the issues that concern many of the members. They also realize that, if the bill includes controversial provisions, it likely will not achieve unanimous consent and pass by September 30. In that event, since the EB-5 extension continues to be tied to extensions of the religious worker, shortage area doctor and E-verify programs, the chances would increase that there would be a straight extension of all programs with no changes, possibly for a shorter term. That is not the desired result in either the House or the Senate.
  • There are two uncontroversial provisions or series of provisions that stand a good chance of finding their way into the soon-to-be introduced House bill. One is an increase in the investment amount. At this time, the amount of such increase is uncertain. It appears to me that the most likely increase will be the amounts set forth in Senate Bill 1501; namely, $800,000 for targeted employment area investments and $1,200,000 for other investments. The $2,000,000 minimum proposed in the recently introduced Lofgren-Gutierrez bill is (hopefully) unlikely to find its way into the ultimate legislation.
  • The other set of provisions that are considered both non-controversial and critical are the so-called “integrity provisions”. These include provisions that would enhance the transparency and security of the EB-5 program. Many of the provisions of Grassley-Leahy on these subjects may well find their way into the House bill. Examples include: increased annual compliance reporting by regional centers; USCIS site visits to projects; increased disclosure of parties receiving compensation from transactions; barring regional center and project principals with criminal or securities violation backgrounds; increased ability of the government to terminate offending regional centers; and other measures to protect investors against fraudulent projects.
  • It is very possible, but at this time uncertain, whether changes in the definition of targeted employment area will be included in the new legislation. Key members in the House and the Senate are unhappy with the present TEA system. They are uncomfortable with state involvement, and they are uncomfortable with the fact that census tracts and other political subdivisions can be “gerrymandered”. The problem is that there is no uniform solution agreed to by all. There is almost uniform agreement that the limitation to one census tract in Senate Bill 1501, which would eliminate almost all urban TEAs, is not the answer. Many different possibilities are presently being discussed and debated. If agreement among key leaders in the Senate and the House can be reached in the days before the House bill is introduced, some TEA language could find its way into the bill. If not, it may be left for another day.
  • Although it is possible that changes in how job creation is determined may be in the bill, in my opinion such changes are likely to either be minor or nonexistent. Again, there is broad agreement that the extensive changes suggested in Senate Bill 1501 are unworkable and would largely eviscerate the program. At this writing there are no clear alternatives being posed. It is likely that any attempt to make significant changes to the job creation provisions would fall outside of the “non-controversial” litmus test for a bill that would need expedited approval in both the House and the Senate.
  • That leaves the critical — and perhaps the most difficult — issue of effective dates and grandfathering. As of the date of this blog, it is unclear how this will be dealt with in the House bill. There are two major issues: grandfathering of projects and grandfathering of investors. Hopefully, the Senate bill mechanism of grandfathering projects based on the filing of exemplar petitions before the effective date of any new legislation will be carried over into the House bill. This would enable future investors to invest at the present investment amount — usually $500,000 — as long as they invest in a grandfathered project.

The Senate bill did not grandfather investors with pending I-526 petitions. This would have lead to the anomalous result that investments that were perfectly compliant when I-526 petitions were filed 12 or 18 months ago would no longer be compliant because of USCIS delays in adjudication. The unfairness of this is manifest since, in many cases, the investors’ investment money has already been used in the project, the jobs have been created and the investors can’t get their money back. Yet, through legislative sleight of hand, such investors would no longer qualify to immigrate. Hopefully, the House bill will rectify this inequity by grandfathering investors who filed I-526 petitions before the effective date of any new law. However, a significant concern is the volume of pending petitions caused by USCIS processing delays.

Given this uncertainty, there is a limit to the advice that we can give to regional centers, developers and investors with any confidence. For regional centers and developers, the best advice is to file exemplar petitions before the effective day of any new law. There is no disadvantage to doing so. There is a potential huge advantage if all future investors are grandfathered at the lower investment amount.

For investors, our suggestion is to invest in projects that have filed or will file such exemplar petitions. If possible, file I-526 petitions before September 30. We don’t know whether such filings will grandfather the investors, but we do know that any changes will make the law tougher, not easier. Again, there seems to be no disadvantage to filing before September 30; and there may be very real advantages.

I want to emphasize that everything contained in this blog is simply my opinion based on substantial involvement in the advocacy process. Having just shared these thoughts with the Chinese public, I wanted to make certain to share them with the readers of our blog.