Monday, July 28, 2014

In EB-5 criticism, Daily News doesn't connect dots to Atlantic Yards; industry pushback on Fortune story leans on Buffett buff

Yesterday the New York Daily News offered this brief editorial, A wheely big deal, subtitled "$150 million from Chinese nationals to help build the Staten Island Ferris Wheel":
You know the enormous Ferris wheel project planned for the North Shore of Staten Island? It just got a huge cash infusion: $150 million, through a federal program that lets affluent foreigners and their families get temporary visas when they invest at least $500,000 in U.S. job creation. In this case, the lucky rich visa-holders-to-be are 300 Chinese nationals.
And you thought immigration policy was broken.
My comment: "Same goes for Atlantic Yards: $249 million. Through deceptive marketing."

Somehow the Daily News didn't connect the dots. But maybe that's because no other news outlet beyond this blog has reported on the Atlantic Yards deal, and the Staten Island news emerged last week.

On the New York Wheel

The Staten Island Advance reported 7/24/14, New York Wheel gets financial backing from Chinese investors through federal green card program:
STATEN ISLAND, N.Y. -- The New York Wheel project slated for Staten Island's North Shore will get some big bucks from foreign investors in China after receiving approval Monday for a federal green-card job program.
The Wheel will rake in a total of $150 million in foreign investment through a popular federal program known as EB-5, project CEO Rich Marin told the Advance Wednesday.
"There's nothing about it that isn't good for us -- this is good news for Staten Island," Marin said. "This is good news for the project. This is good news for everyone."
EB-5 provides temporary visas for affluent foreigners and their families if they invest at least $500,000 in job-creating enterprises. This can eventually lead to them receiving green cards if their investment creates at least 10 permanent jobs within two years.

The $150 million investment in the Wheel project will come from 300 foreigners living in China, each investing $500,000.
Note that this represents nearly 38% of the $400 million in total financing. 

Marin admits the rationale: "Without EB-5, we would have had to find another source of financing to fill that hole, which would have been much more expensive."

Duh. Which is why it's such a great deal for developers.

How many jobs?

The article states, "In total, the New York Wheel will create 350 construction jobs and 500 permanent, full-time positions."

But wait: the investment has to create 3000 jobs, at least on paper, at ten jobs per investor.

A 7/25/14 article in China Daily, NY Wheel reels in Chinese EB-5 investors, adds this detail:
According to job studies commissioned by New York Wheel, the project will create about 4,200 jobs, including 300-350 construction jobs and 400-600 permanent jobs.
And that's all it takes, even though the methodologies are dubious, as I've noted and as noted in a major Fortune magazine investigation published last week.

Industry pushback

On 7/24/14, IIUSA Statement on EB-5 Article in FORTUNE, the Association to Invest in the USA tried to push back:
As the industry trade association representing over 200 EB-5 Regional Centers across the country that account for well over 95 percent of all capital flowing through the EB-5 Regional Center Program (the “Program”), IIUSA has consistently supported Congress, regulators and other stakeholders to ensure the integrity and continued success of the Program. It is unfortunate that this week’s FORTUNE article used an old story of fraud committed by a criminal who has been brought to justice to characterize an entire industry that contributes billions of dollars to U.S. GDP, supports tens of thousands of American jobs, and generates hundreds of millions of dollars in federal, state, and local tax revenue – all at no cost to taxpayers.
No one is more committed to protecting the integrity of the Program than IIUSA and its members – which did not include Mr. Sethi. That’s why we filed an amicus brief in support of the SEC’s enforcement action and publicly stated our support for the enhanced inter-agency collaboration necessary to protect the integrity of the Program. That’s why we have developed industry best practices and traveled all over the world to promote them, and why we conduct regular compliance training for our members. And, that’s why we have consistently supported strong oversight by Congress and regulatory agencies.
The long list of successful projects ignored in the story demonstrate the reality of the Program as a 21st century economic development tool – nearly 800 jobs at new senior living facilities in rural Washington State, more than 400 at a science incubator in Milwaukee, over 100 building and operating a much-needed medical facility in Riverside County, California, in addition to larger projects like the San Bernadino Regional Airport and Philadelphia Navy Yard where thousands of jobs were created. Those are just a few of the EB-5 success stories creating jobs in local communities.
In the words of Warren Buffet, Bill Gates and Sheldon Adelson: “People willing to invest in America and create jobs deserve the opportunity to do so. Expanded investments of that kind would help us jolt the demand side of our economy. These immigrants would impose minimal social costs on the United States, compared with the resources they would contribute. New citizens like these would make hefty deposits in our economy, not withdrawals.” 
Like these titans of business, we stand with America’s job creators in support of EB-5.
The IIUSA has a partial point. The fraudster who was the focus of the Fortune investigation was an actual criminal.

The scandal regarding EB-5 isn't the illegal activity that sometimes arises. The scandal is what's legal, as I've noted.

As to "industry best practices" and "regular compliance training," well, consider the piously evasive Senate testimony by the IIUSA's Robert Divine.

And Fortune's Peter Elkind did point to solid evidence that questions all the industry claims:
Others who have examined the program view it very differently. They question whether it generates many jobs—especially in needy areas. A December 2013 study by the Department of Homeland Security’s inspector general found that the government “cannot demonstrate that the program is improving the U.S. economy and creating jobs for U.S. citizens.” A February 2014 paper by the Brookings-Rockefeller Project on State and Metropolitan Innovation concluded that “knowledge of the program’s true economic impact is elusive at best.”
And it's fairly clear that the "titans of business," as I wrote, don't know what they're talking about.

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