Committee Chairman Bob Goodlatte (R-VA), in his opening statement, expressed surprise and dismay about many aspects of the program, though he wants to mend it, not end it, as the Hill reports.
In one case we reviewed, an EB-5 project received 82 percent of its funding from U.S. investors through a regional center. The regional center was able to claim 100 percent of the projected job growth from the project to apply toward its foreign investors even though the foreign investment was limited to 18 percent of the total investment in the project. Every foreign investor was able to fulfill the job creation requirement even though the project was primarily funded with U.S. capital. When we questioned USCIS about this practice, the officials explained that the EB-5 project would not exist if not for the foreign investment.That's perhaps plausible when the EB-5 money is seed money, but in a large majority of cases it is not, experts agree, but rather "margin for the developer."
In fact, the "other people's money" in the case of the first round of Atlantic Yards EB-5 fundraising, which brought the developer a $228 million low-interest loan and saved tens of millions of dollars, included public funds.
Questioning the director
Under questioning, Nicholas Colucci, Chief of the Immigration Investor Program for USCIS, could not quite share Goodlatte's outrage. He repeated his statement from a hearing the previous week, that some 160 industries would not qualify for EB-5 funding, because $500,000 could not create ten jobs, even though federal rules allow indirect and "induced" jobs to be counted.
Colucci added that "the reverse is true," that "many projects" consist solely of EB-5 funds--a contention about which I'd like to learn more details. And he added that in some cases, loans from other sources are contingent on EB-5 funds. This was not the case in the slightest regarding the Atlantic Yards fundraising.
Indeed, Goodlatte drilled down, pointing out that the federal government had not increased the minimum investment level for inflation--the $500,000 floor has existed for 25 years, but is expected to rise. "If you had done so, wouldn't jobs have increased?"
"Sir, that is correct," Colucci responded.
Similar to the 18% example: Atlantic Yards EB-5
The first two rounds of Atlantic Yards fundraising portrayed the EB-5 funds as a fractional piece of a purported larger "project," which itself is smaller than the full Atlantic Yards project.
As I wrote in December 2010, the "project," as presented involves a total of $511 million in state bond financing, $457 million in Forest City Enterprises/partners' bonds, $131 million in city funding, $100 million in state funding, and $249 million in EB-5 investment funding, for a total of $1.448 billion.
As shown in the graphic, prepared by one of the Chinese migration agencies helping recruit investors, the latter were were told that EB-5 funding was only 17% of total "project" funding, with the rest coming from government funds, private investments, and "New York State Municipal Bonds." (Actually, government-authorized tax-free bonds, via the Brooklyn Arena Local Development Corporation, are not municipal bonds.)
So 17% is even less than the 18% cited by Goodlatte.
Similarly, as I wrote in January 2014, in the second round of EB-5 fundraising for Atlantic Yards, the EB-5 funds were portrayed as 20% of the vaguely defined $1.235B "project" subset.
As seen in the screenshot at left, 41% of the $1.235B "project" would be a senior loan--I'd guess that's tax-exempt bonds--while 37% would be the developer's capital.
Of course, in both cases, the "project" at issue is cooked up for the purposes of EB-5.
But these "projects," as portrayed, accomplished two things: they suggested that the EB-5 funds were mere fractions of the overall cost, thus lowering the risk to investors, and they allowed the investors to get credit for the full project costs.
It's nice that Congress is finally waking up, but it sure took a while.