As two extension deadlines came and went for the EB-5 Regional Center Program at the end of 2015, it became clear that meaningful reform for the program would have to wait. Ultimately, the program's fate was wrapped up in larger federal spending legislation passed at the eleventh hour, extending it--as is--through the end of the fiscal year, Sept. 30, 2016, with potential integrity measures on the horizon.
In the weeks leading up to the decision, a flurry of articles and commentaries addressed this relatively tiny immigration program - a program that amounts to less than 2 percent of all legal immigration; in other words, less than 4,000 families per year. Despite the program's small footprint on paper, EB-5 touches tens of thousands of individuals each year, many of whom are waiting in an increasingly long line for the chance for their applications to even be considered.
Because of numerical limitations on the program, the immense popularity of the visa among Chinese nationals and sluggishness on the Hill, Chinese investors currently face up to a six-year wait before being granted even a temporary green card. While our legislators are busy politicking, average Americans are missing out on millions of job-creating investment dollars that may soon start flowing to countries like Portugal and Australia, as Chinese investors tire of waiting in line to live the American Dream. Remedies for retrogression--the name for what's holding up so many investor applications--must be part of any future legislation to be effective.
The 19,000 Pound Gorilla
The recent program extension, while certainly welcomed, has done nothing to solve the most pressing problem of the industry--thousands of eager investors are stuck behind a red light for no other reason than out-of-date quota numbers.
The reality of retrogression is this: the pipe is blocked up. Despite a numerical cap of 10,000 EB-5 visas per year, only approximately 3,500 investor applicants are granted visas each year. This happens because an investor's derivatives, meaning their spouse and children that are allowed to immigrate with them, also count toward the cap. Applications in excess of this 3,500 are left to build up and wait for available visas, and at present, there over 19,000 individual investor applications in the pipeline. In fact, some industry members estimate that the backlog has swelled to about 20,000 I-526 petitions pending at USCIS and about 21,000 pending EB-5 visa applications.
How did this happen:
1. The program is very popular among developers because it's a cheaper and covenant-lite source of capital. While cheaper, the capital is often essential for some projects as it often bridges gaps in a project's capital stack. A growing number of project developers are marketing more and more quality projects and subscribing investors eager to immigrate to the States.
2. Congress hinted (through proposed bills) that it intended to reform the EB-5 regional center program and increase the minimum investment amount to $800,000. Taking into account the economic growth that has occurred since the program's inception, the increase makes sense, but speculation surrounding the potential price increase caused a huge influx of applicants prior to September 30, 2015 who sought to be grandfathered into the $500,000 investment level. And while the $500,000 investment minimum remains available to EB-5 visa applicants, it's likely that the applications will continue to stream in and add to the already massive bottleneck.
What does this mean for the program?
The anticipation of legislation increasing the cost of the EB-5 visa has clogged the drain, and this will likely only increase over the next year.
Because the program was extended with no reform, current applicants are faced with the same annual numerical cap of around 3,500 families, with a waiting line nearly 20,000 families long. Based on that backlog, families that have just applied will have to wait for six years for EB-5 visas to become available. Six years is a long time to wait with at least $500,000 tied up, before an investor is even allowed into the United States on a conditional green card.
What Could Happen Without Visa Backlog Relief?
In the midst of reform debates ranging from the intricacies of Targeted Employment Area definitions to preposterous concerns over the use of the program by foreign spies, not enough emphasis is being placed upon perhaps the biggest threat to this job creation program: the visa backlog. Putting $500,000 or more at-risk and creating 10 jobs in order to obtain the EB-5 visa is already an extremely risky proposal for prospective immigrant investors. Who is to say how many are willing or able to make the investment and hold out for six years before their conditional green card becomes available? Suddenly, global investment immigration programs such as Portugal's golden visa, which allows access to the European Union, or Australia's Business Innovation and Investment visa, which does not subject investors to taxation on their global income, become more attractive alternatives to the United States investor visa program.
If our legislators do not execute EB-5 reform to offer visa backlog relief, it is not unrealistic to envision a severely diminished job creation program. Immigrant investors are savvy and the United States may no longer be the most attractive program--as a plethora of international investment immigration programs grow up and show up ready to compete, the United States can no longer rest on its laurels.
With the one-year extension, legislators can make real progress in reforming and strengthening the EB-5 program. Any truly valuable future legislation will address the foundational issue at stake: raising the visa cap or reevaluating its allocation among derivatives. By doing so, Congress can preserve the future of a program that has brought $10 billion of job creating capital into the United States without burdening the taxpayers.