Defender of EB-5 program recommends "leveling the playing field," but doesn't recognize that ending gerrymandering would kill many regional center projects

The front-page 12/19/11 New York Times article on EB-5 abuses, Rules Stretched as Green Cards Go to Investors, generated a defensive and somewhat naive commentary by EB-5 practitioner Scott Barnhart, who serves an an EB-5 economic consultant via his firm, Barnhart Economic Services.

Given that Barnhart's 12/22/11 commentary appeared on a very popular EB-5 web site, Brian Su's EB-5 News Blog: Regional Centers in the USA, it's worth a careful look as an example of industry thinking.

Too much regulation?

First, Barnhart suggests that the article "illustrates the problems encountered when regulators, developers and regional center owners must comply with the myriad regulations set forth by Congress surrounding the EB-5 immigrant investor pilot program."

However, the problems are not caused by over-regulation; they've been enabled by (take your pick) poorly drawn regulation or under-regulation. No one has blown the whistle on such problems previously, but they've long lingered, and the industry has not publicly pushed for reforms.

Barnhard acknowledges that "there is much ambiguity in the law and little guidance given by USCIS in applying it," but suggests that the agency is not running amok but doing the best it can with limited resources.

Unmentioned: that advocates, including immigration lawyers, have pushed to ensure that USCIS not intervene in state designations of Targeted Employment Areas, notably those with 150% of the national unemployment rate. Only in such TEAs can immigrant investors pursue green cards by investing $500,000, rather than $1 million.

Leveling the playing field?

 Barnhart acknowledges:

Finally, there is little guidance concerning how to collect census tracts surrounding the tract in which the project is located to use for unemployment calculations, hence the claim of gerrymandering.

However, if USCIS would simply level the playing field for all sates, any perception of whether one state is getting more projects than is truly justified would be eliminated. This could be done either by allowing states to claim any type of geographic region (or shape) as long as it reaches the 150% rate or it can be done by setting very strict guidelines that all states must follow. Either of the methods will work as all regional centers and state agencies will be on equal footing.

Not in the slightest. Under more strict guidelines--such as requiring not merely contiguous census tracts but those that represent a jurisdiction, or a roughly symmetrical shape--New York City would not be able to get the state to approve TEAs for projects like Atlantic Yards.

There would be many fewer regional centers, and the center of gravity in the EB-5 business would shift to rural and more clearly needy areas. 

Government collusion?

Barnhart writes:

Next, are state and local government agencies, politicians and/or the USCIS wrong in approving projects that are not “true” TEAs? Assuming graft is nonexistent or minimal, they are clearly responding to the demands of their respective constituents, all wanting to bring jobs and wealth to their states.

Whoa. They're surely responding to demands of their constituents, but the EB-5 program, at least in certain cases, surely benefits the middlemen and the borrower far more than the public. Thus, the program is not bringing "jobs," it's bringing concentrated profits.

He suggests that "leveling the playing field such that uniform rules apply to all states will solve the problem." Again, it won't for this rapidly growing industry if it eliminates many regional center projects.

The benefits of gerrymandered areas

Barnhart offers a dubious defense of the International Gem Tower:

Clearly the “34 story glass tower” located in Manhattan will have a large impact in the local community and much of the labor used for the construction and maintenance of the buildings will be done by those intended to benefit from the law, employed from either nearby boroughs, the Bronx or Harlem.

Clearly? How does he know where construction workers come from? Many come from the suburbs. The point of the TEA is to benefit truly needy communities.

He adds:

Will jobs be lost in Nevada, California or other states because a 34 floor glass tower is built in New York? Perhaps, but currently there is great demand for US legal residency and over 200 regional centers from which to choose. Moreover, given the current state of the US economy, the economic benefits of projects rejected based on the 150% unemployment target may simply be lost forever as locations in other areas or other states are not close substitutes. For example, if the 34 floor tower typically used for retail, office space and/or residential purposes did not qualify in New York, one can be assured that states with the highest unemployment levels are not likely close substitutes for a Manhattan address for either the developer or prospective investors, so this project would likely be shelved. 

There is great demand for US legal residency, but many of the regional centers are not successful, as flashier projects, some with very dubious promises, catch the attention of immigration brokers in China.

Barnhart seems to be arguing that this project deserves to go through because there's no similar project elsewhere, and this would likely be shelved.

But why not let projects in true TEAs that are not being funded reap the benefits? And if there's no market, as of now, for space in such a tower, why should it be subsidized? 

"Large economic benefits"?

He concludes

Similarly, a large condominium in Florida will not sell if located in a high unemployment area away from the coast instead of a lower unemployment area on the coast, yet the labor will be imported to the site. Both projects though will provide large economic benefits to their regions. So given the current robust demand for citizenship in the US, this is likely not an issue at the present, but this may change in the future. Again, leveling the playing field would come a long way in resolving any perceived or real issue.

How do we know the projects will provide large economic benefits? Or, more to the point, how do we know we're "selling" green cards for sufficient public benefits?

And, as noted, "leveling the playing field" would make a huge difference.