EB-5 reform stymied by Schumer (and allies); most investors' capital simply bolsters profits, doesn't jump-start projects
For more than a year, U.S. Sen. Charles Grassley had been pushing to overhaul a controversial program that gives green cards to foreigners who invest at least $500,000 in certain businesses. So when congressional leaders last week moved forward with a 10-month extension of the so-called EB-5 program without any changes, the Iowa Republican was less than pleased.Though industry leaders agreed on tightening rules regarding the so-called Targeted Employment Area--the oft-gerrymandered map (as with Atlantic Yards and the "Bed-Stuy Boomerang") used to designed a "high unemployment" area--big money, and influence with legislators like Sen. Chuck Schumer, preserved the status quo.
“Maybe it is only here on Capitol Hill—an island surrounded by reality—that we can choose to plug our ears and then refuse to listen to commonly accepted facts,” he said in a 33-minute diatribe on the Senate floor Thursday. The program, he said, is “riddled with flaws and corruption.”
Despite broad agreement that EB-5 is in need of changes amid mounting allegations of fraud and abuse, lawmakers last week failed to reach an accord over just how to go about reform. Among the contested issues was a change—urged by Mr. Grassley and strenuously resisted by real-estate developers—that would have made it harder for luxury projects to benefit from a provision meant for economically ailing neighborhoods. In addition, developers worried about a provision that would have disrupted some EB-5 financed projects already under way, people briefed on discussions said.
For now, there's only a 10-month renewal, leading to--potentially--further discussions of reform. Or, if Grassley's diatribe left him permanently soured--I doubt it, given the assistance reform would give to projects in his state, Iowa--the end of the program.
“Now I’m not so sure reforms are possible,” Grassley said. “It may be time to do away with EB-5 completely.”
Unlikely reforms, but reasons remain
I don't see that as likely, given the gravy train for developers, lawyers, migration agencies, and the intermediaries/loan packagers known as regional centers. But if/when there is some true national leadership, maybe we can rethink a program that I think is riddled with dishonesty and should go.
As I wrote earlier this year, perhaps the clearest summary of the lure and sketchiness of the program--in which developers/entrepreneurs get cheap loans if they dangle a purportedly job-creating investment--came in a February 2012 quote from an EB-5 fundraiser to The Daily: “It’s just a way of being able to get free money, basically, to build all sorts of projects.”
Or, to quote an essay/editorial in the 5/27/15 Immigration Daily, an online newspaper for the immigration law field:
As best as we can estimate, currently the bulk of the EB-5 investment (85%) is taking place in the "Extra Profits" category of projects where only a small sliver of EB-5 capital is used to lower the overall cost of capital. Remaining 15% is distributed evenly between the category of projects that would not be built but for EB-5 capital, Hands on investments and pooled direct investments. The EB-5 program was originally conceived to be focused on the "But For" and "Hands on" projects and has expanded radically to include these four different flavors.