Wednesday, February 08, 2012

A critic of the EB-5 visa program says it's failing (maybe); report says it's easier to buy your way into the U.S. than other countries

David North of the "low-immigration, pro-immigration" Center for Immigration Studies (also see SPLC's criticism of the organization's ties with extremists), the most public critic of the EB-5 immigrant investor program, expands on his December 2011 Congressional testimony with a January 2012 report titled The Immigrant Investor (EB-5) Visa: A Program that Is, and Deserves to Be, Failing.

His summary is that "despite massive promotional efforts":
  • There are comparatively few takers, and only a fraction of them complete the process and get green cards;
  • No one, citizens or aliens, middlemen or workers, or the economy generally, seems to be getting much out of the program;
  • Many of the investments turn out to be bad ones, some scandalous; and
  • Other immigrant-receiving nations run much more rational programs than we do, while securing more significant investments, proportionately, from aliens.
I think some of North's points, notably the last one, are valid, others more questionable. For example, the middlemen in law firms and the investment pools known as regional centers are doing pretty well, and the number of takers is rising markedly, which undermines his argument that few aliens are interested in the program.

And he doesn't really grapple with two issues that also diminish the program: deceptive marketing of investments to potential investors, as well as the questionable chances, at least with some investments, that investors will get their money back.

Still, and whatever the political valence of his organization, he deserves credit for grappling with an issue that some more "progressive" immigration organizations, like the Immigration Policy Center, simply sit out.

Indirect jobs

In his history of the program, he notes that:
Perhaps the most significant legislative relaxation of the program arrived in 2003 when the previous demand for a hard count of 10 new jobs was replaced by a mandate for the calculation of indirect job “creation using any ‘reasonable methodologies.” Middlemen organizations that promote this program often promise that their own economists will help investors — for a price — calculate the indirect creation of jobs.
That, of course, is the secret to calculating how immigrant investors in the Atlantic Yards project are creating jobs that no one can see.

Comparison to other programs

It's a lot easier to get into the United States, it turns out, and the cost is lower.


North writes:
On the other hand, as Table 1 shows, the half-million-dollar investment that routinely works in the United States is a relatively small sum of money compared to the demands made of immigrant-investors in Australia, the Bahamas, New Zealand, and the United Kingdom. Canada, alone of these immigrant investor nations, asks for a smaller investment, but wants it for a longer time and it calls for it to be a non-interest loan to a Canadian province.
Actually, North is working off old information. Canada in 2010 announced it would double its investment level from $400,000 to $800,000, and that is now in place.

In other words, the $500,000 minimum, which would be enshrined into law if the regional center pilot program is made permanent, is way too low, especially since it hasn't been raised in 20 years to keep pace with inflation. (It's about $290,000 in 1990 dollars.)

Note that the $500,000 minimum in the U.S is not required to go through a regional center. Nor must regional centers offer $500,000 investments (though in practice they do).

Rather, the $500,000 level is contingent on the investment being made in a Targeted Employment Area, which is either rural or has an unemployment rate more than 150% of the national average.

North points out in the report that the investments mean more in the other countries. Given their much lower GDPs, each investment has a higher bang per buck. He writes:
I do not like the idea of selling our visas at all, but if we do, we might as well get more for them. 
Versus Canada

North points out how other countries demand more of the investors, with maximum age limits, and language tests.

I'd add that Canada's Selection Criteria (left) include age, education, adaptability, experience, and language.

The United States requires only cash, acquired legally, and a willingness to put it at risk.

More denials

North notes that the percentage of denials in EB-5 cases is much higher than in regular immigration cases, even though the agency likes "getting to yes":
Bear in mind — and this is subjective but based on many years of observations — that USCIS, in general, loves to say “yes” to applications of all kinds. It sees itself as a benefit-granting agency, not an impartial court that happens to have migrants among those it must judge.
Noting scams

Beyond the gerrymandering of TEAs, which has gotten publicity lately, North cites some other scams:
For example, many a case was rejected because the “investor” had not made an “at-risk” investment; it was a camouflaged loan, for example. Or the full required sum had not been invested. Or the alien himself had not really invested in the project, the money coming from a corporation, rather than an individual, as is required. Or the project was in a million-dollar area, and the investment was for half of it. Or the amount of money claimed to be invested included fees to middlemen, so that the full amount needed would never get to the project.
Little tracking

USCIS does not look into several important aspects of the program, North writes:
As to research, I heard, while attending one of the frequent “stakeholders’ meetings” conducted by USCIS on this subject, that the agency did not keep track of the private fees that were charged to the investors; “all we want to do is to make sure that the full investment is made in the project,” the staffer declared. I then asked, given the two-year stipulation as to the minimum length of the investment, “does USCIS have any idea what percentage of those two-year investments are still there, say, three or four years after they were made?”
The answer was no, and there was no indication that the agency had any curiosity on the subject.
The lack of internal research on the program was confirmed in a recent Los Angeles Times article, which stated: “The USCIS, by its own admission, has failed to closely track the flow of EB-5 money, how the projects are being sold to investors or whether the projects were successful. Instead, its focus has been on making sure jobs are created — but not that the jobs will last.”
Meanwhile, he points out, program changes, such as additional staff and premium processing, are aimed to get more approvals quickly.

Good deals?

He says there's a lack of "glowing government press releases on success stories," which is true when it comes to USCIS, but there's no shortage of local news stories and press releases regarding projects.

Rather, the investments are marginal, he suggests, citing an array of mini-scandals (though not Atlantic Yards). I'd agree that many are marginal bets, but they may make a difference in the local economy, hence the support from powerful legislators like Sen. Patrick Leahy (D-VT).

What the EB-5 program as currently structured does is set up an incentive for local beneficiaries to lobby their representatives.

The regional centers, he suggests, are not doing well, which may be true overall--but the ones that are doing volume work, like the New York City Regional Center, seem to be doing quite well.

What about E-2?

North writes about a much more popular E-2 Treaty Investor program, which is limited to nations with whom we have investment treaties. That doesn't include China, hence their domination of EB-5. E-2 goes through the State department, and does not grant permanent residence, but E-2 visas can be extended indefinitely. It requires a much smaller investment, without middlemen.

Why so little publicly? North speculates on several reasons, such as the small size of the project, the approval made overseas, the lack of institutions like regional centers to promote them (or seek to make it permanent), and the fact that it goes through the State Department, not DHS. Who uses it most? The Japanese.

What to do

The report suggests that visas should be more precious:
Visas should be saved for spouses of citizens, truly talented and well-educated aliens, and genuine refugees fleeing real dictatorships who have no other options. Selling our visas to unimpressive people (who cannot be admitted otherwise, or else they would not be applying to EB-5) with unimpressive amounts of money, for too low a price, is a terrible waste of a valuable resource.
He calls the program badly designed, so if a replacement is needed, it should be "both simpler and more demanding," aimed at entrepreneurs, not passive investors, willing to put at least $1 million into projects that do not include real estate.

And, he suggests, they'd also put $1 million "to be lent to the U.S. government or to one of the states at zero interest for four years (to bring some distinctly public benefits into the program), and yet another million as a cushion against the possible failure of the investment."

In other words, that's a bit like Canada, which takes the money, and gives it back years later with no interest. No middlemen, nothing flashy.

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