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What Jersey City coverage says about EB-5 discourse (and why key admission should be in future articles)

Last week, the Washington Post published a valuable investigative piece, How Jared Kushner built a luxury skyscraper using loans meant for job-starved areas. It came a week after my similar but more limited article, published as a commentary (but really more reportage/analysis) in City & State, How Jersey City Unemployment Was Gerrymandered to Help Kushner Pitch Investor Visas.

Did the WashPost rip me off? No. Their reporting started before my piece emerged. Did they go beyond my coverage? Yes, in some helpful ways, but also in part showing how (to me) EB-5 reporting is constrained.

Did they fail at first to acknowledge my article? Yes, but after being nudged they did insert a minor reference. Did the WashPost article draw far more eyeballs and comments? Of course.
As the graphic shows, we both published maps, based on a records request to the state of New Jersey, that showed how severely skewed maps of high unemployment--150% of the national average--were drawn to enable cheap financing via the EB-5 investor visa program, thus saving the developer money.

The Washington Post, with a bigger budget and more resources, added reporting, including skeptical quotes from locals (as did the Jersey Journal, following up), a dubious quote from a project principal, and more background on how the maps were developed.

Framing the issue

While the Washington Post deserves credit for spotlighting legal but not-so-ethical EB-5 gerrymandering--noted in reporting since 2011 from me, the New York Times, the Wall Street Journal, and CityLab--the article's framing also suggests how challenging this issue can be. Consider my annotated version of the article's headline.

In other words, the loans are not really "meant for job-starved areas," because the original intention has been ignored for years, as has been widely reported, though the Washington Post scanted the record.

(The Post noted that "The move was legal, and other developers have used similar strategies in recent years, often aided by state officials who welcome the infusion of cash." That doesn't fully acknowledge that gerrymandering so-called Targeted Employment Areas is standard operating procedure in EB-5, because it saves developers money.)

Why that pattern? That's due to all those profiting from EB-5--the project sponsors, the middlemen "regional centers," immigration lawyers, migration agencies--and the elected officials from both parties who are happy to see local projects get cheap financing.

The losers are the public at large, who could benefit from a more rational way to market precious public assets, but few if any represent the public interest. That's why the press is important.

The bigger question

I understand why the Post framed the issue so simply: EB-5 is obscure to most readers. But the more important, and interesting issue, is why this policy is allowed, who defends it, and whether they are credible. The Post article only touched on that issue.

In other words, such gerrymandering was patently ridiculous in 2011, when I and the Times reported on such practices. It was even more ridiculous in 2015 and 2016 when the Wall Street Journal and CityLab did their own investigations.

So, while it's satisfying to read that residents of poor Jersey City neighborhoods say that a luxury Trump-branded Kushner-built tower hasn't helped them, despite inclusion of their neighborhood in the gerrymandered maps, that only goes so far. The policy's defenders must be challenged.

The defense

From the Washington Post:
An executive at U.S. Immigration Fund-NJ, a firm helping Kushner Companies to raise EB-5 money for both projects, defended the practice. Mark Giresi, chief operating officer, called it a “common sense” approach that reflects the broader economic reality of each project’s surroundings. He also said jobs created by the project could be filled by workers from the depressed areas only miles away.
“In large urban markets like Jersey City these types of real estate development projects create much-needed jobs, particularly in the construction industry across areas of the city that cover multiple census tracts,” Giresi said in a statement. Census tracts are government-defined neighborhoods, sometimes as small as a few blocks in area.
The Post found a critic, who responded in part:
“Many of these affluent-area projects would have been built and jobs created without the infusion of EB-5 capital,” said Gary Friedland, a scholar in residence at New York University’s Stern School of Business. “Consequently, deserving projects can’t be built and the resulting jobs are lost because the projects are deprived of the essential capital to proceed.”
I doubt whether the Rube Goldberg-esque EB-5 program--with all those middlemen skimming profit--is the best way to even help "deserving projects," perhaps those sponsored by nonprofit groups. After all, as analyst Christian Beckner (see below) suggested two years ago, the program is not defensible. But Friedland's right to say that many projects don't need the money.

The devastating admission

After all, Nicholas Mastronianni II, founder of the U.S. Immigration Fund and thus Giresi's boss, already said--as I reported--that "Projects that don't typically need the capital are the projects that we look to lend money on. If a project can't be developed without the EB-5 capital, it's not a project that you should be looking to invest in, because you've got a desperate situation."

That devastating admission should be part of all subsequent EB-5 reporting. The Washington Post missed it. 

At this point, industry figures like Mastroianni or go-to attorney Stephen Yale-Loehr, or representatives of the trade association Invest in the USA--who claim that EB-5 brings investment at "no cost" to the public--do not deserve credence. They deserve skepticism and rebuttal. 

If that doesn't come from reporting--if the journalist cannot find a "she-said" to respond to the "he-said" puffery--it should come from the journalist's own rigorous skepticism. Or it should come from the "voice" that elevates reportage/analysis to commentary. 

Because #EB5IsARacket, as I've tweeted--backed by much evidence.

What else was missing

Though Friedland partly rebutted Giresi's statements, the Washington Post article failed to directly rebut (though the locals quoted implicitly did so) Giresi's claim that the maps represented a "common sense" approach.

Until and unless the project sponsors provide a head count of workers--and EB-5 not only does not require that, it lets jobs be calculated through an economist's projections--they should not be allowed to say that without rebuttal.

It's the same kind of statement that EB-5 defenders like Sen. Chuck Schumer (D-NY) has made, as if suggesting that projects in prosperous Midtown Manhattan somehow hire significantly from Harlem housing projects.

The article closed by pointing out that rules proposed by the outgoing Obama administration would reform gerrymandering, limiting the maps to the tract in which the project is built or immediately contiguous ones. That would preclude the Trump Bay Street project and the proposed One Journal Square one.

From 2015: a call for abolition

There are other critics. In the official blog of the Center for Cyber & Homeland Security at the George Washington University, Deputy Director Christian Beckner wrote 3/25/15, Time to abolish EB-5: Thoughts on the DHS IG Report on Deputy Secretary Mayorkas:
My main takeaway after reading the full report is that the EB-5 program – a creation of Congress – should be abolished. At the very least, it should be significantly narrowed to allow visas only for direct investors in real businesses, not the shell companies – the so-called “regional centers” – that seem to dominate this program.
The fundamental economic premise of this program is highly questionable. Any new or growing company that has a good business plan and solid economic prospects should be able to raise capital by securing commercial loans, finding private investors, and utilizing government programs such as the Small Business Administration’s loan programs. Any business that is unable to raise funds through such traditional means, and instead turns to a program such as EB-5, is either (a) one that has a flawed business plan or (b) doesn’t need EB-5 but is using it to lower their cost of capital and engage in rent-seeking behavior....
The questionable economic basis for the EB-5 program – and the possibility of undeserved economic gains from rent-seeking – are an invitation to cronyism.
Congress will likely express outrage and dismay over this IG report, but it needs to consider its own role in creating and then expanding such a program in the first place. The IG report and Mayorkas’s response make clear that many members of Congress have tried to use this program throughout its history as a pseudo-earmark, pushing USCIS to approve EB-5 proposals that would provide economic benefits in their states or districts, without regard to the fundamental soundness of such investments. By contrast, Congress has a sparse record of oversight and scrutiny of the program’s efficacy in the past decade.
(Emphases added)

The gerrymandering just reinforces those observations.


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