A discussion draft from both the Senate and the House of Representatives proposing to reform the EB-5 program has been distributed amongst stakeholders in the EB-5 industry as of Nov. 7, 2015. The discussion draft, along with the five bills introduced in the 114th Congress, have many provisions seeking to provide reform for the EB-5 program. Realistically, and with the EB-5 program temporarily extended until Dec. 11, 2015, not all reforms will be enacted, but the following proposals within the bills seem to be consistent with what the U.S. government would like to see changed in the program, and it also reflects the desire of parties affiliated with the EB-5 process, including regional centers, attorneys, and the like.
There have been five bills introduced in the 114th Congress, and one discussion draft distributed. The five bills are listed below:
- H.R. 616: American Entrepreneurship and Investment Act
- S. 1501: American Job Creation and Investment Promotion Reform Act of 2015
- H.R. 3370: EB-JOBS Act
- S. 2122: Invest in Our Communities Act
- S. 2115: Targeted Employment Areas Improvement Act
The newest discussion draft circulated by the Senate and House of Representatives reiterates just how important, and at times conversation-inducing, this program has become. The discussion draft mirrors much of the format and language of S.1501, but it also provides some changes and modifications that may be a reflection of the reaction from the EB-5 community as well as the events that have unfolded since S.1501 was introduced in June 2015. More notably, the provisions introduced by the discussion draft propose the following changes to the EB-5 program:
Job Creation Methodology: Allows for 90 percent indirect jobs, which means that 10 percent of jobs must be direct. An employee of the job-creating entity, and not the NCE, may be considered a direct job. The discussion draft includes a provision that the Bureau of Economic Analysis (BEA) must accept the job creation methodology. It also includes provisions for relocated jobs, publicly available bonds, and construction jobs that have not been included in the introduced bills. Notably, if enacted, it permits tenant occupancy under certain circumstances determined by an economically and statistically valid methodology. On the other hand, if enacted, there is a provision that explicitly prohibits alien investor capital for purchase of municipal bonds or other bonds. In addition, the length of any full-time construction jobs that last less than 24 months may be aggregated to satisfy the job creation requirement.
Targeted Employment Area: There are 4,000 visas set aside for TEAs; 50 percent for rural and 50 percent for high unemployment/high poverty areas. The authority rests within DHS and is not bound by a Federal or State governmental or non-governmental entity. A high unemployment TEA is defined as an area “consisting of a census tract or contiguous census tracts in which each census tract has an unemployment rate that is at least 150 percent of the national average unemployment rate.” The discussion draft provides that the census tract at 150 percent may be adjoined by a census tract or tracts with any unemployment level. The rule is effectively a two census tract rule, with one tract required to be at 150 percent of the national average.
The discussion draft also provides a TEA designation to an area consisting of one or more high poverty census tracts (defined as a census tract with a 20 percent poverty rate and a median family income of “not more than 80 percent” of the state or metro area median income). A high poverty area may be located in an urban or rural area. Designations are also given for infrastructure or manufacturing projects and BRAC projects. All TEA designations are valid for two years.
EB-5 Integrity Fund: Unlike S.1501, the discussion draft includes a provision that provides a fee differential dependent on the size of the regional center – a $25,000 annual fee is imposed on all regional centers, except for regional centers with less than 20 investors, in which case the annual fee is $10,000.
Increase in Investment Amount: The discussion draft includes provisions that would raise the minimum investment amount to $1.2 million for non-TEAs, and $800,000 for TEAs, manufacturing, or infrastructure or BRAC. The minimum investment amount is automatically adjusted every five years, or can be annual as well, based on CPI.
Effective Dates: The discussion draft includes specific language on effective dates that do not appear in any of the other five introduced bills. Specifically, job creation, source of funds provisions, and minimum investment amount provisions will be in effect from petitions filed June 1, 2015 and after. However, if an exemplar for the project was approved prior to June 1, 2015, it will not affect the I-526 petition. If the petition filed prior to the date of enactment is deficient, the investor or the regional center will have 180 days to supplement the petition to “cure” any deficiencies.
To really capture the landscape and the attitudes towards the EB-5 program, it is important to compare the provisions in each of the five bills that have been introduced in this Congress. The reforms proposed in each document can be grouped in what seems to be the EB-5 industry’s, as well as the government’s, biggest concerns regarding the EB-5 program. Below is a concise summary of the headlining topics, as well as how each bill proposes to address the issue:
Job Creation Methodology
- H.R. 616: Not included in legislation.
- S. 1501: 90 percent of job count can be indirect; 10 percent must be direct; can have credit of jobs from non-alien investors only for percentage of total jobs created that is equal to percentage of total investment, but cannot exceed 30 percent. No tenant occupancy allowed. Bureau of Economic Analysis (BEA) must accept methodology.
- H.R. 3370: Methodology to be approved by DHS and Commerce. Job creation outside of the geographic boundary of the regional center may be considered if the estimated job creation is supported by substantial evidence and is no more than 50 percent of estimated jobs.
- S. 2122: Reasonable methodologies must be used.
- S. 2115: Not included in legislation.
Targeted Employment Area
- H.R. 616: TEA designation determined by State Agency; valid for two years.
- S. 1501: One census tract; TEA designation determined by DHS.
- H.R. 3370: 4,000 visas set aside for high unemployment areas; 2,000 for rural areas, and 2,000 for counties with a 20 percent or greater decrease in population since 1970, a state or federal economic development incentive program, or an area within the boundaries of a military installation closed under the BRAC law. TEA valid for five years.
- S. 2122: Not included in legislation.
- S. 2115: 5,000 visas set aside for TEAs. TEA designations are valid for five years. This bill defines a “high unemployment area” as a “census tract or group of census tracts that are economically integrated” and which take into consideration commuter flow patterns, that meet the unemployment threshold of 150 percent of the national unemployment average, or an area within the boundaries of a Federal or State development inventive program designed to create jobs, start small businesses, or revitalize neighborhoods.
Preapproval of New Commercial Enterprise
- H.R. 616: Optional preapproval process.
- S. 1501: Required.
- H.R. 3370: Optional preapproval process.
- S. 2122: Optional preapproval process.
- S. 2115: No change to existing law.
Annual Statement
- H.R. 616: Not included in legislation.
- S. 1501: Annual statement required.
- H.R. 3370: Annual Statement required.
- S. 2122: Not included in legislation.
- S. 2115: Not included in legislation.
Foreign Government Ownership/Administration
- H.R. 616: Not included in legislation.
- S. 1501: Not allowed.
- H.R. 3370: Not allowed.
- S. 2122: Not allowed.
- S. 2115: Not included in legislation.
Securities Attestations
- H.R. 616: Not included in legislation.
- S. 1501: Regional center needs to certify compliance, and have procedures and policies in place.
- H.R. 3370: Regional center needs to certify compliance, and have procedures and policies in place.
- S. 2122: Regional center needs to certify compliance, and have procedures and policies in place.
- S. 2115: Not included in legislation.
EB-5 Integrity Fund
- H.R. 616: Not included in legislation.
- S. 1501: $20,000 fee for each regional center.
- H.R. 3370: Immigrant Entrepreneur Account to be created to administer the program.
- S. 2122: Not included in legislation.
- S. 2115: Not included in legislation.
Transparency of USCIS
- H.R. 616: Not included in legislation.
- S. 1501: Extensive transparency measures introduced.
- H.R. 3370: Not included in legislation.
- S. 2122: Not included in legislation.
- S. 2115: Not included in legislation.
Reauthorization Period
- H.R. 616: Permanent reauthorization.
- S. 1501: Five years.
- H.R. 3370: Permanent reauthorization.
- S. 2122: Permanent reauthorization.
- S. 2115: Not included in legislation.
Increased Visa Numbers
- H.R. 616: Spouse and children eliminated from 10,000 numerical limitation; per country quotas eliminated.
- S. 1501: Not included in legislation.
- H.R. 3370: An additional 10,000 visa numbers may be made available if visa numbers have been exhausted.
- S. 2122: Spouse and children eliminated from 10,000 numerical limitation; per country quotas eliminated.
- S. 2115: Not included in legislation.
Increase in Investment Amount
- H.R. 616: Not included in legislation.
- S. 1501: $1.2 million for non-TEAs, and $800,000 for TEAs. Automatically adjusted every five years, or can be annual as well – based on CPI.
- H.R. 3370: $1 million for TEA, $2 million for non-TEA. Effective for first fiscal year that begins more than six months after date of enactment. Adjusted every three years per CPI.
- S. 2122: Not included in legislation.
- S. 2115: Not included in legislation.
There is no doubt that the introduction of all five bills shows the impact of the EB-5 program and just how important this job-creating, investment-yielding program is to the United States and its economic growth. Numbers alone show that between 2005 and 2013, the EB-5 program generated $5.2 billion dollars in foreign direct investment into the United States.
The current EB-5 legislation landscape has five introduced bills and one discussion draft that has not been introduced yet as a bill. All of the bills seek to reform the EB-5 program, and it is clear that minimum investment amounts, job creation methodologies, Targeted Employment Area designations, securities law compliance, and integrity and compliance measures are the main focus of reform.
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