The recently introduced EB-5 Regional Center Extension Act of 2014 will have a significant impact on the future of the American Economy. While the program has faced challenges, it has institutionalized quickly. EB-5 capital is no longer an exotic form of financing, and has been a boon for municipalities across America. Demand from China for the program is robust and support within the industry is building – it’s time for Congress to pass this bill.
Permanent Extension of the EB-5 Regional Center Program
Dan Redford
The EB-5 Investor Visa Program was created by Congress in 1990 to stimulate the U.S. economy and create jobs. The original program was designed to allow foreign nationals an opportunity to obtain a green card by making a $1 million investment into the U.S. that created 10 jobs for American workers. In 1992, an amendment was made to create “regional centers,” or geographic areas of the country approved to accept investments of $500,000 in targeted employment areas. According to the U.S. Citizenship and Immigration Services (USCIS) department, approximately 90% of EB-5 visas come through regional centers.
Since its inception, the regional center model has been a temporary piece of legislation. Congress is required to renew the program every two to three years depending on the length of extension, and as it stands now, the program is set to expire in October 2015. A permanent extension is precisely what has been proposed in this new legislation. Although Congress has consistently renewed the program in the past, a permanent extension legitimizes the program both at home for developers, fund managers, service providers, politicians, and others, as well as in the minds of foreign investors. In turn, the program would continue to develop enabling American job-creators to gain a deeper understanding of how to leverage it.
Impact on Chinese Investors
Another piece of this legislation that has significant effect on Chinese investors is the proposal to remove per-country quotas for visas issued in the employment category. According to the Immigration and Nationality Act, the per-country limit for immigrant visas across all categories is approximately 7% annually, or just over 25,000. Under this new legislation, this rule would no longer apply, making the supply of visas available based on the respective demand from each country.
It has been widely reported that Chinese investors are increasingly taking the lion share of these EB-5 visas; thus, this legislation would have the biggest effect on them. For example, in 2004, just over a dozen visas were issued to Chinese applicants. Last year, the USCIS revealed that number nearly reached 7,000, accounting for approximately 80% of the total EB-5 visas issued. Demand from China is clearly insatiable. In fact, the U.S. State Department began issuing warnings that there might be a cut-off date imposed for Chinese nationals in the EB-5 visa category. This would mean that Chinese applicants would potentially experience delays of up to two years, compared to about half a year now to get their green cards delivered after their application is approved.
In addition to making the process more arduous for Chinese applicants, another important development is “retrogression,” or the “aging-out” of children that are beneficiaries of the principal application. Under U.S. law, the EB-5 visa is meant to allow an investor, the spouse of an investor, and any children under the age of 21 to be included in one investment application. During the adjudication process, a child’s age is based on when the application was submitted (e.g. if the application is submitted on July 20th and the child turns 21 on July 21st, he or she can still be included as a beneficiary). However, if the retrogression is imposed, there may not be visas available after their application is approved. If that happens, the current age of the child is taken back into account, risking their status as a beneficiary. The Extension Act of 2014 would prevent the negative effects of retrogression from happening. It makes the program more attractive for foreign nationals and avoids the untenable situation of having children “age-out” on an application.
Finally, Chinese and foreign nationals increasingly have other options. Australia, the U.K., and Spain are a few countries that have similar investment programs. Countries such as Canada have also shut down their investment programs to improve them and compete for investment abroad in the future. Nevertheless, many investors in China and across the world are looking to what move the U.S. might make next. Of the 60,000 visas denied by the closing of the Canadian program, approximately 45,000 of them were Chinese applicants. By removing the country quota, much needed clarity about the future of the EB-5 program will penetrate the Chinese market. This will help to increase the absolute amount of investment from China into the U.S. by building more confidence in the stability of the program.
The Case for the Extension Act of 2014
To be sure, the EB-5 program has received backlash. Some say the EB-5 program merely “sells visas for cash,” cheapening the value of American citizenship. Others believe the unbalanced influx of Chinese investors has an overall negative implication on America.
These are small-minded views. The EB-5 program exemplifies what makes America great: it’s a nation built for immigrants to conduct business in the most level playing field in the world. Participants are contributing greatly to the U.S. economy and the numbers speak for themselves. According to the Association to Invest In the USA (IIUSA), the leading industry trade association for the EB-5 regional center program, last year, the EB-5 program added over $2 billion to the U.S. economy. This investment created thousands of jobs for American workers at virtually no cost to taxpayers.
It is unclear whether or not the legislation will be passed, as this is not the first permanent authorization legislation to be introduced to Congress. But as demand grows, it is clear that changes need to be made. The EB-5 Regional Center Extension Act of 2014 proposes practical resolutions to the most pressing uncertainties about the current EB-5 program, and Congress should move to pass it through.
Dan Redford is based in Beijing, China where he serves as the Vice President of Investor Relations for Civitas Capital Group, a leading independent specialty asset management and financial services firm with operating divisions focused on Alternative Investments, EB-5 Funds and Wealth Management. He is also the President of the Michigan State University Beijing Alumni Club.
