You don't have to favor restricting immigration to grow skeptical about a little-known federal program known as EB-5, which provides green cards to foreign millionaires if they park money here for a few years.
Not only does it look like the United States is selling visas, but the terms are easier than in other countries. The visa program was approved by Congress two decades ago as a job-creation effort (EB = "employment-based"), but today immigrant investors don't have to directly create jobs.
A look at the largest-ever EB-5 project, an attempt to raise $249 million for the uber-controversial Atlantic Yards project (arena plus skyscrapers) in Brooklyn, provokes more skepticism. After all, proponents admit that the funding won't create new jobs--and "jobs" were a justification for subsidies the project has already received.
So, if a seven-city promotional tour in China (see graphic below) that kicks off this week is successful, here's what may happen: 498 millionaires, most of them Chinese, will each park $500,000 for five years in an investment fund, organized by the privately-owned New York City Regional Center (NYCRC) at the behest of developer Forest City Ratner (FCR).
At the cost of foregone interest, and $52,750 in fees, the investors and their families will get permanent green cards in two years. Brooklyn developer FCR will get a no-interest (or low-interest) loan for five years, saving perhaps $100 million.
And the public may get very little, at least if the NYCRC can get this plan past the United States Citizenship and Immigration Services (USCIS), a division of the Department of Homeland Security.
The USCIS must agree that at least 4,980 jobs will be created or retained. However, as I've described on my Atlantic Yards Report blog and detail below, there is ample reason to question project proponents.
First, some background. The EB-5 program launched in the early 1990s with defensible goals. After all, countries like Canada and Australia were attracting immigrant entrepreneurs and investors.
The original EB-5 visa program required each investor to spend $1 million to directly create ten new jobs. The program lets them live anywhere in America, with the opportunity to get kids educated in the American system.
Over the years, the program morphed. No longer must the immigrant investors directly create jobs. Rather, most choose government-authorized private companies known as regional centers, which collect funds and distribute them to businesses and nonprofit organizations.
Such regional centers need not count direct jobs, but can calculate the number of jobs indirectly created, or retained, via an economist's report. And investors need only to come up with $500,000.
Bipartisan supporters of the program in Congress, at a Senate hearing last year, maintained that EB-5 was less an immigration program than a job-creation program.
Would-be immigrants are more candid; one Chinese investor told a reporter that the goal was green cards for the next generation.
The Atlantic Yards controversy
Since it was announced in 2003, Atlantic Yards has provoked controversy because of the private rezoning on behalf of a favored developer, property acquisition via the dubious use of eminent domain (a declaration of "blight" in an area with million-dollar condos and an adjacent historic district), and a significant amount of governmental subsidies and tax breaks.
The overall project, with a $4.9 billion price tag, includes an arena for the relocated New Jersey Nets and 16 towers.
Adding an unexpected twist to an already epic saga, in September 2009, just after the project received final approval, Russian billionaire Mikhail Prokhorov entered as a new partner. He now owns 80% of the Nets and 45% of the arena, and benefits from all the governmental help.
The EB-5 controversy
The EB-5 issuance has generated criticism, given the dubious pitch to investors. Firm CEO Bruce Ratner told the Wall Street Journal the money would be used a new railyard (which the developer is obligated to build) and perhaps to pay off a land loan.
However, as presented to Chinese investors, the "project" promotes the already-funded arena, and the basketball team, using the glitz of NBA basketball as the lure. (Click here for translation of the graphic above.)
Only by redefining the "project" as the arena, related infrastructure, and the railyard, with a cost of $1.448 billion--and attaching the railyard to already funded components--does the risk to investors seem diminished.
Funding for the remainder of the Atlantic Yards project, more than $3.4 billion, is uncertain.
Dubious job projections
Crucially, the revised definition of the "project" raises doubts about jobs. The NYCRC's agents in China advertise that this "project" would generate 7,696 jobs, far more than the required total of 4,980, or ten per investor.
The math doesn't seem to work. Should 7,696 jobs be produced by $249 million, that suggests that the entire $4.9 billion project would result in some 154,000 jobs.
Nor should the 7,696 total be attached to the base $1.448 billion "project," since the arena's already funded.
Could this investment be seen as saving future jobs? No, because they would depend on other funding streams, like tax-exempt housing bonds.
New York State's Empire State Development Corporation (ESDC), which is paying to send an executive to promote the project, has already published more modest job projections. Even those are questionable, given that they depend on a full buildout over ten years, a best-case scenario that even Bruce Ratner now doubts.
"Most significant project"
Local elected officials, such as Brooklyn Borough President Marty Markowitz, support the EB-5 effort, and have appeared on web sites promoting the project in China.
Still, Markowitz backed out of his plan (as reported by the New York Post) to join developer Ratner in Beijing this week to kick off the China tour.
Perhaps Markowitz was chagrined by claims by Gregg D. Hayden, a NYCRC official, during an online forum last month for Chinese investors.
[T]he Barclays Center is our third project and the most significant project in the city and state of New York in the last 20 years. It is very significant because it generates well in excess of 10,000 jobs for years to come, future job creation, with the support of government, on government-owned property, and the support of one of the largest real estate companies in the United States, Forest City Enterprises.
No one's called it the "most significant project" in the city and state--I'd suggest the rebuilding at Ground Zero--nor has any government report endorsed those job claims.
Hayden also said that, unlike the immigrant investor programs in other countries which have "certain meaningful requirements," here investors need not speak English or intend permanent residency.
The big money
There's big money involved: if the project issue fees go to it, the regional center could earn nearly $19 million, while immigration attorneys could earn more than $7.3 million. Forest City Ratner might claim hardship to save more than $100 million, even as its parent company, Forest City Enterprises, has more than $467 million in cash and credit capacity.
Are immigrant investors really needed when Prokhorov's involved? During the forum for investors, Hayden faced that simple question:
They see that the Russian oligarch is the owner of the team. And that he spent a lot of money and has a lot of money. And so, if he has so much money, why do we need Chinese investment on this project?
He dodged it:
Very important. The Barclays Center is a significant project. It creates a redevelopment of the railyards, which is the third largest transportation hub in New York, as well as this arena. And in the arena, the New Jersey Nets, the NBA franchise team, which is owned by the Russian oligarch, Jay-Z, Beyoncé, and Forest City Enterprises, is the primary tenant. This is their home arena, at which they'll play in excess of 40 games per year.
The transcript in Chinese featured the curious addition of words not spoken:
The costs of using investment funds are relatively lower than the costs of bank loans. Although the NBA project funds are sufficient, business is business, and we are in pursuit of profit maximization.
That may impress potential investors, but sure seems to contradict the spirit--and perhaps the letter--of the EB-5 program.
That's why the USCIS and the rest of the press should give this "project" serious scrutiny.
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