Tuesday, March 29, 2011

Believable? Feds told $249M in immigrant investor (EB-5) funds would create 3705 construction jobs, 350 in retail, 1786 in art/entertainment

How can Forest City Ratner and its partner, an investment pool called the New York City Regional Center (NYCRC), claim that 498 Chinese (and Korean) millionaires seeking green cards would create 7696 jobs by investing a half-million dollars each ($249 million total) in the Atlantic Yards project?

It's one of the most preposterous claims in the entire saga of Forest City Ratner's effort to gain a low-interest loan, saving perhaps $191 million, via the federal government's EB-5 program. Under the program, investors and their families gain green cards in exchange for purportedly job-creating investments, ten per investor.

Now there's new evidence undermining the claim, given that the claimed job total--including jobs in construction and entertainment--can't reflect how the money would be used.

Job totals

A graphic (left, and translated below) on the web site of Kookmin, a South Korean immigration agency working with the NYCRC, suggests, for example, that the investment would create 3705 construction jobs and 1786.5 jobs in "art, entertainment."

Those numbers defy common sense--the entertainment jobs, for example, would have to be tied to the arena.

But the money isn't needed for the arena.

I'll explain more below, but first let's review the concept of jobs for green cards.

Graphic from NYCRC.

The common-sense analysis

First, the way jobs are calculated under the EB-5 program can defy common sense.

After all, if $249 million could create nearly 7700 jobs, the full $4.9 billion Atlantic Yards project should create 20 times as many jobs--a preposterously enormous number.

(Last month, we learned there were 150 workers at the site.)

But the EB-5 immigrant investor program need not comport with common sense.

Avoiding common sense, part 1: commingled funds

Regional centers, private investment pools authorized by the federal government, can package immigrant investor funds with other funds and credit the total with job creation. That's what they're claiming in this case: $1.448 billion (including the arena, infrastructure, and a new railyard), not $249 million.

It's plausible to credit the total if the immigrant investor funds serve as seed money to get a project off the ground.

In this case, Empire State Development Corporation officials admit the nearly $1 billion arena--in which investors are told their money would go (see above)--would go forward with or without immigrant investor financing and that no new jobs would be created.

But federal guidelines are vague; lawyers for the New York City Regional Center (NYCRC) have written that "The amount is not restricted to EB-5 capital but may include other sources that will be invested roughly at the same time and for the same purpose."

If the NYCRC can claim job creation based on the entirety of the $1.448 billion "project" in which the would-be immigrants are investing, not simply the $249 million, that suggests a very dubious practice.

After all, what's to stop any developer from refinancing a land loan--as FCR is doing--and claiming job creation based on all the money in the larger project?

(Another Forest City Ratner executive said recently that "We don’t know where those proceeds are going to go.")

Avoiding common sense, part 2: no counting, generous methodology

A 9/17/09 memo from Empire State Development Corporation Chairman Dennis Mullen, estimated impacts from the full project over 30 years:
3998 permanent jobs in New York City and 4277 jobs in New York State, inclusive of New York City, as well as 16,427 new direct job years from construction and 25,133 total job-years.
Keep in mind that, over the official ten-year buildout, that's 1643/2513 construction jobs a year. Over 25 years, the number of construction jobs would be far fewer. And, as we know, the numbers at the site are far smaller.

With EB-5, there's no need for counting actual jobs.

In practice

It doesn't look to me that the Atlantic Yards arena bonds, for example, count as "roughly at the same time and for the same purpose" as the EB-5 funds. As noted, the ESDC acknowledges that the arena would proceed with or without the immigrant investor funds.

So the premise of bundling the EB-5 funds with the arena funds strikes me as bogus.

However, I was unable to get guidance from the United States Citizenship and Immigration Services (USCIS), the agency that oversees investment immigration.

Calculating the jobs

FCR and the NYCRC are claiming that the $1.448 billion "Brooklyn Arena and Infrastructure Project" would create 7696 jobs. And they need not count the jobs but simply can submit an economist's report.

It still defies common sense. There is no "Brooklyn Arena and Infrastructure Project." It's supposed to include the arena, related infrastructure, and a new railyard.

What they told the feds

But what are the official projections? As described below, in numbers I assume were submitted to the federal government, the regional center projected that most jobs "created" by the investment would be in construction as well as arts and entertainment.

There seem to be two possible explanations.

The less likely one is that the developer and the New York City Regional Center actually submitted the "Brooklyn Arena and Infrastructure Project" for evaluation.

If so, they're already violating their promise, because Forest City Ratner admits that the money wouldn't necessarily be used for the "Brooklyn Arena and Infrastructure Project" as pitched to immigrant investors.

More likely, they simply got the overall "Atlantic Yards Project" approved, and the job numbers are pro-rated from the job totals for the project as a whole.

If so, the economic report submitted to the federal government--part of a series of documents not publicly released--was generic, applying a "multiplier" to the entire sum of money estimated for the project. And that defies reality.

Crediting arena jobs to immigrant investors

Based on the chart, as translated below by a translator I hired, we have some clues.

According to the chart, "The economic report of the project incorporates the RIMS II method to measure job creation, and the job creation index is approved by U.S. Citizenship and Immigration Services as follows."

That includes 3705 construction jobs, 350 retail jobs, and 1786.5 jobs in arts and entertainment.

That sounds a lot like they're crediting the immigrant investor funds with jobs in concession stands and jobs in the circus.

That's ridiculous.

Muddying the "project"

The Kookmin web site also contains the following quote from then-Governor David Paterson: "This project will create thousands of new jobs. Together with the city, the state, and many other federal offices, we give our strong support to the project.”

His quote had nothing to do with the project as pitched to immigrant investors. It's yet another version of the weasel words and ambiguous language I described in December.

Rhetoric from Paterson and Mayor Mike Bloomberg supporting the Atlantic Yards project as a whole has been transposed to the "Brooklyn Arena and Infrastructure Project."

The modular complication

The chart, and the EB-5 pitch, were produced before Forest City Ratner's plans for potential modular construction of Atlantic Yards towers surfaced.

That would further reduce the number of workers at the site. But it wouldn't affect the economist's report, because it uses approved formulas that surely don't take into account reduced staffing as a result of modular construction.

Notes on the chart

Note that the chart in Korean identifies the second column as number of people, but no units were offered for Total Production, Total Income, and Production per capita.

As for the category of Waste Administration, it was translated from "Administration, waste disposal supervision." That sounds a bit like Sanitation, but the translator said no. So those 266 jobs remain unclear.

Also, the category Housekeeping was translated from "Housework."

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