The Department of Homeland Security (DHS) released the full text of its proposed regulations governing the US EB 5 Investment Green Card program (also known as the “employment-based fifth preference” or “ immigrant investor visa” program) on January 11, 2017. These proposed amendments to the EB-5 program purport to bring the program in line with statutory changes and existing policies as well as reform aspects that have been in need of revision.
While the proposed amendments are extensive, there are five (5) primary changes that would affect those considering pursuing a green card through the EB-5 process:
- Minimum required investment amount for projects not located in a Targeted Employment Area (TEA) is increasing from $1 million to $1.8 million;
- Minimum required investment for projects located in TEAs is increasing from $500,000 to $1.35 million;
- TEA designations will be set at the federal level (DHS) rather than by the states;
- Criteria for TEA designations will change and;
- Petitioners can retain the priority date of an EB-5 petition when filing a new petition.
What is a Targeted Employment Area?
A Targeted Employment Area (TEA) is a geographical area which is rural or has an unemployment rate that is at least 150% of the national average unemployment rate.
Increased Investment Amount for Non-TEA Projects
In 1990, Congress set the original minimum investment amount for the EB-5 program at $1 million and delegated the Secretary of Homeland Security with the authority to adjustment this minimum amount. However, ever since the EB-5 program’s inception, the minimum investment amount has not been changed.
This has led to DHS claiming that the current amount is out of date and insufficient due to inflation. Therefore, DHS proposes that the minimum investment amount be increased by the percentage increase of the Consumer Price Index for All Urban Consumers (CPI-U) from 1990 to 2015. The use of the CPI-U to calculate the increase results in a new minimum investment amount of $1.8 million.
Further, DHS proposes that a mechanism be installed for corresponding increases to account for inflation every five (5) years. DHS argues that these changes will bring the program more in line with the original Congressional intent and increase the amount of foreign investment into the United States.
Finally, DHS proposes a requirement for every investor to demonstrate a present commitment to have the entire minimum investment amount at the time the petition is filed. Previously, investors could qualify merely by demonstrating they were in the process of investing.
The increase proposed by DHS is a substantial one and will likely have a large impact upon current stakeholders. As a result, DHS mentions that it would consider incrementally increasing the amount instead of accounting for 25 years of inflation in one sudden increase.
Increased Investment Amount for TEA
Just as the non-TEA minimum investment amount is set to increase, DHS has also proposed an increase in the minimum investment amount for projects located in TEAs. When the EB-5 program was first authorized Congress specifically authorized the Immigration and Naturalization Service (INS, now Department of Homeland Security) to reduce the minimum investment amount in a TEA by up to 50 percent.
In 1991, the INS set the TEA threshold investment at 50 percent of the standard $1million investment minimum, or $500,000. Since the TEA minimum investment amount was much lower, and in addition, Congress set aside 3,000 visa numbers each year for this category. These changes led to investment in projects in TEAs becoming the most widely-used investment category. USCIS data from 2015 shows that approximately 97 percent of petitions are based on TEA investments.
In order to encourage investment at the standard minimum amount rather than the reduced TEA investment amount, DHS is proposing that the TEA investment amount be set at 75% of the new standard minimum of $1.8 million instead of the current 50% of the old $1 million standard minimum, for a TEA required minimum investment of $1.35 million. This increase in the required TEA investment is meant to balance the interest in encouraging investments in TEAs with increasing the amount required to invest in TEAs.
TEA Criteria and Priority Date Retention
The other proposed amendments to the EB-5 program are focused on the process and criteria of determining what areas can be designated as TEAs.
Eliminating States’ Ability to Designate TEAs
First, DHS suggests that states’ ability to designate TEAs be eliminated. This is due to states using inconsistent standards for TEAs in order to encourage investment into a respective state. This has resulted in TEA designations that encompass relatively wealthy areas with low unemployment.
Instead of allowing states to designate TEAs, DHS is recommending that it handle TEA designations. DHS will make TEA designations in line with EB-5 statutory authority, which means generally only approving areas that have unemployment rates of at least 150% of the national average, and approving rural areas.
Further, the mechanism for determining high unemployment areas will be based on the census tract using a bullseye approach. The center of the bullseye will be the census tract or tracts in which the new company (also called New Commercial Enterprise) is principally doing business.
That area must have a weighted average unemployment rate that is 150 percent of the national average unemployment rate. Additionally, the census tracts immediately adjacent to the bullseye tract will be included in the TEA if the weighted unemployment rate of the entire area is 150 percent of the national average.
EB 5 Priority Date Retention
Finally, DHS proposes that any EB-5 immigrant petitioner be allowed to use the priority date of an approved petition for any subsequently-filed petition for which the petitioner qualifies. This would essentially allow petitioners to retain their priority date and avoid losing their place in the visa queue if they were to move their investment to a more promising one or if an investment project were to fail.
This is helpful as it will allow greater flexibility to investors and provides the opportunity for investors to continue seeking permanent residence through the program when drastic events occur such as a regional center being terminated, or a direct investment project fails.
US EB 5 Investment Green Card
There are other technical changes being proposed to update the USCIS regulations on EB-5s and to change some of the processes for removing conditions on residence for investors. The proposed changes were published on January 11th and are open for comment through April 11, 2017.
On January 20th, resident Trump’s first day in office, White House Chief-of-Staff Reince Priebus issued a memorandum freezing the progression of any regulations that were not already in effect. While many believe the goal of the regulations freeze was to stop some environmental regulations from taking effect, the new policy affects these proposed changes to the EB-5 program as well. Because these changes have been published but have not yet reached their effective date, they may be subject to an additional 60 days of review by the Trump administration, and the Trump administration may issue a notice to reopen these regulations for reconsideration instead of making them effective.
Mr. Trump’s website states that part of his vision is to “Reform the entire regulatory code to ensure that we keep jobs and wealth in America,” “end the radical regulations that force jobs out of our communities and inner cities…” and that the moratorium on regulations is done to “give our American companies the certainty they need to reinvest in our community, get cash off of the sidelines, start hiring again, and expanding businesses.”
The purpose of the EB-5 program is creation of jobs for U.S. workers, and the program allows U.S. businesses who are seeking to establish new entities that will create jobs to obtain investment funds, all of which appear to be in line with Mr. Trump’s vision. However, the proposed changes to the investment amounts will reduce the number of people who have sufficient funds to invest in the United States and thus may reduce the number of jobs created as a result of the EB-5 program. Regardless of whether these proposed regulations go into effect or not, the EB-5 regional center pilot program will sunset on April 11, 2017 unless reauthorized by Congress.
Due to the regulatory freeze announced by President Trump’s office, the Law Office of Kathryn N. Karam PC will continue to monitor the changes to this program throughout 2017.