Unsurprisingly, the hearing, titled "The Investor Visa Program: Key to Creating American Jobs" (video), featured little skepticism about the program and some fudging from witnesses. One evaded the fundamental reason why developers and entrepreneurs like EB-5: foreign investors are willing to accept little return in exchange for green cards. (Hence the support for Atlantic Yards.)
Statements by Representatives
In a statement, Subcommittee Chairman Elton Gallegly (R-CA), led off with enthusiasm:
Almost 10,000 green cards a year are available through the investor visa program for foreign businessmen who invest in American businesses and create jobs for American workers. If investors and their families utilized all these visas, and each investor created the 10 jobs called for by the program, tens of thousands of jobs a year would be created. That is something I’m sure all of us could all rally around.Rep. Zoe Lofgren (D-CA), said, "This program seems like a no-brainer, but it is severely underutilized." She noted uncertainty that the regional center program would be renewed, and a lack of consistency by the United States Citizenship and Immigration Services (USCIS), a subsidiary of DHS, in adjudicating EB-5 petitions.
And yet, the investor visa program is presently underutilized. DHS issued only 749 investor visas in 2006, rising to 2,480 in 2010. The program has the potential to be a far larger job creator.
The recent growth we have seen in the investor visa program has come from the regional center pilot program. A regional center pools investments in defined economic zones. The establishment of a regional center may be based on general predictions concerning the kinds of commercial enterprises that will receive capital, the jobs that will be created directly or indirectly as a result of such capital investments, and the other positive economic effects such investments will have. Numerous regional centers exist in my state of California.
The regional center program expires in a year. We will examine today its level of success in generating jobs, the merits of a reauthorization and the appropriate length of a reauthorization.
Rep. Lamar Smith (R-TX), who chairs the overall committee, stated that the program plays a part in the number one job of Congress, "to create jobs." He acknowledged a dollop of concern about fraud:
Just as in any visa program, there is the potential for fraud in the investor visa program. We have to ensure, both for the sake of the American people and potential foreign investors, that regional centers operate at the highest levels of professionalism and integrity. The business plans and promotional materials that regional centers produce should meet the same standards as if they were to be submitted to the Securities and Exchange Commission.Supportive testimony from Dallas
In a statement, Daniel J. Healy, CEO of Civitas Capital Group, a boutique asset management firm based in Dallas, described how his firm collaborated with the city of Dallas to set up the City of Dallas Regional Center, which, in 17 months, "has committed to six high-quality investments totaling $91 million," from 182 foreign nationals who will create at least 1,820 new jobs.
He noted how, in 2008, there were perhaps 35 Regional Centers but as of September there were180 in 36 states--what he called "success stories like the CDRC’s all over the United States."
Given the growth of the program--an expected 3,200 petitions in fiscal 2011, "it is clear that the annual allocation of 10,000 EB-5 visas will soon become a constraint on the program’s ability to create more jobs for U.S. workers and bolster local economic development." After all, each petition likely requires three visas, one for the primary investor and also two dependents.
Healy recommended that the USCIS speed processing times--currently six months each for both processing Regional Center applications and individual investor petitions. He applauded news that USCIS was "hiring a large number of adjudicators, economists and other personnel in order to expand the agency’s capacity and bring processing times down," as well as offering “premium processing” for a fee.
Supportive testimony from Vermont
In his statement, Bill Stenger, President of Jay Peak Resort, Jay, VT, called the EB-5 Program "a win-win-win program for all involved," saying his firm gained access to equity capital to create needed facilities and jobs, while the foreign investor gets the green card
He recommended that Congress make this program permanent to make planning more effective, and USCIS should strive for efficiency and predictability.
Gallegly asked Stenger, "Where would you be without EB-5?"
Stenger said the resort would be confined to winter operation only, as "equity capital is just not available."
Q&A: buying their way in?
"How do you respond to those who that claim that the investor visa program simply allows aliens to buy green cards?" asked Gallegly.
Stenger gave a roundabout answer: "What I see in our investors, and I think in all of the quality programs in the country, you see people who are interested in being in this country, they have the capacity to invest in a project that's job-creating. Yes, they're getting a preference, but they're bringing something that we desperately need: we need equity capital. You asked the question earlier: what would we be if we didn't have access to this? The banking community is just not available to us in the manner that we'd like it to be. And that's not just true at Jay Peak, that's true for small business throughout this country. So, when our investors come, they bring their capital, they bring their good educations, many of them invest in other communities that they live in. It's truly a win-win-win situation, in that they bring capital, they bring their education, they bring their family, they bring their love of this country, and their desire to be here, and it's a great economic benefit, and it creates jobs everywhere along the way."
He wasn't pressed on it.
Gallegly asked Healy, "From your perspective, do you see any fraud or dubious investment vehicles in the regional center program?"
"From my perspective, no, I don't regularly see fraud or dubious investments," responded Healy. "I have seen--I think what's important to keep in mind, in any market, there's a range of investments... our program... has a particular approach... some of my competitors I would invest in, some I would not. In terms of fraud or abuse, I really don't see that. We see a great number of investment opportunities--we try hard to monitor our competition... But where I have seen problems is not really in people entering the market or attempting to game the system, it's much more on the regulatory and adjudication side."
(Even supporters of the program acknowledge fraud; check the "EB-5 Fraud" tag at EB5Info.com
Q&A: rival programs
What about competition from Canadian and Australian immigration programs?
It's sometimes quite stiff, Healy said. "Very recently, the Canadian program doubled the required investment... There's no question that when investors in other countries are considering immigrating, they look at other options. One of the challenges we face at regional center, is the U.S. remains the gold standard, [but] the process... is arduous, time consuming and expensive."
Q&A: why no local investors?
Smith asked, "Why is it we can't find more American investors to participate in these kinds of programs?"
Stenger responded by fudging the issue, that foreign investors are willing to accept little return in exchange for green cards.
"Our particualr program is very attractive to EB-5 candidates around the world. And we have reached out to various parts of the world," he said. "There's an investment market, there is interest in coming to this country, there's a tremendous amount of capital that's looking to be part of programs in the United States. So we have reached out to various parts of the world to welcome investors to the United States. The return on investment is competitive. To reach out to U.S. investors, we have other investments that U.S. investors can participate in. This particular EB-5 program is focused on foreign investors who have capital, who have a good background and are capable of investing and making job-creation occur in rural areas such as ours. So the program is specifically for the foreign investor, bringing capital, creating jobs, in rural high unemployment area such as ours, and that's where we have focused, and we're seeing substantive results."
Rep. Dan Lungren (R-CA) asked, why a regional center was needed to attract foreign investors when presumably local investors are available.
Healy was more candid than Stenger, "There are areas of Dallas that are underserved for years," he said. "While the investment climate in Texas indeed strong, there are always areas that are underserved and that, in particular, EB-5 capital can facilitate transactions occurring... because the capital can be much lower cost and more flexible than traditional investment capital or bank financing."
Q&A: improving the program
Smith asked, "How would you suggest we improve the program... How can we prevent individuals from gaming the system, how can we better protect investors?"
Healy responded, "I think that the way I would suggest that most of the regional centers that are operating now are very high quality and are not attempting to do anything that would be gaming the system. But I think that in order to ensure that doesn't occur, all of the best practices suggested by IIUSA [Association to Invest in the USA], which include complying with and being subject to the regulation of the SEC, with respect to unregistered securities , to the extend that these regional center projects are structured as limited partnerships or other forms of unregistered securities would be appropriate. My background is in institutional investments. I was chief compliance officer at a broker dealer. We are approaching the threshold for being required to register as an investment advisor with the SEC. This is not new to us. For people who are operating at a high quality level, this is not going to be a [problem]."
The Ombudsman's report
USCIS, in its Ombudsman's Annual Report 2011, issued 6/29/11, indicated concerns that "inconsistent administration of the EB-5 program is undermining confidence in the program and, ultimately decreasing the job growth potential that it was designed to create."
The Ombudsman recommended implementation of reforms and cited concerns about "reportedly inappropriate or unduly burdensome RFEs connected with employment-based applications and petitions."