EB-5 Program: Successes, Challenges and Opportunities for States and Localities

The EB-5 Immigrant Investor Program was established in 1990 to stimulate the U.S. economy through job creation and an influx of foreign capital. The EB-5 program grants foreign investors the opportunity to acquire legal permanent residence if they invest $1 million in a commercial enterprise (or $500,000 if the business is in a high-unemployment or rural area) and create at least ten jobs for U.S. workers. While the program experienced very low utilization in its early years, use of the program has skyrocketed since the Great Recession. The number of conditional visas issued to investors and their families increased from 1,360 in fiscal year (FY) 2008 to more than 10,000 in FY 2014, marking the first time that the program had reached its numerical cap. In total, more than half of the 44,400 EB-5 visas issued since the program’s inception have been granted in the last three years alone.

Nearly all of the recent growth has been propelled by the EB-5 Regional Center Program, which was created in 1993 as a pilot program to provide investors with an alternative investment channel to the original program and has essentially become synonymous with the overall visa category. Last year, 97 percent of conditional visas were issued through the Regional Center Program. Overall, about 80 percent of conditional visas issued since 1992 have been through investment in regional centers. The main advantage of the Regional Center Program for investors, other than the lack of a direct management requirement, is the ability to meet the job creation requirement through indirect jobs (i.e., those that may be created in other firms by the existence of the investment project). The Regional Center Program remains subject to periodic reauthorization by Congress, and it is currently set to expire at the end of September 2015.

The EB-5 Regional Center Program has faced several challenges since its inception, including lax oversight in its early years, negative attention around a few high-profile cases of fraud, allegations of corruption and mismanagement, and increasing delays and backlogs. The unique nature of the program, in which the motivation behind investment is primarily migration, can leave both the individual investors and the program susceptible to fraud and abuse. The qualifications and expertise of U.S. Citizenship and Immigration Services (USCIS) adjudicators?who have expertise in immigration law but not financial regulation or investments?in overseeing and verifying the details of financial-investment projects have also been called into question in previous government audits and by lawmakers. Critically, a lack of publicly available data, consistent tracking of project impacts, and other limitations have raised security concerns and make it difficult to assess the overall economic impact of the program. While USCIS has taken steps over the years to strengthen the EB-5 program’s functionality and integrity, recent growth has the potential to exacerbate these challenges.

Nonetheless, the program has worthwhile goals and potential that have already provided positive benefits and could continue to do so with appropriate reforms. Continuing a long track record of bipartisan commitment to supporting and reforming the EB-5 program, bipartisan legislation has been introduced in Congress to reauthorize and reform the program.

Analyzing some of the most recent government data and independent studies of the program, this paper provides an overview of the EB-5 program’s history, performance, and impacts to date. Considering the program’s regional nature and approach, this paper also looks at the increasing interest among state and local leaders in creating either public-private partnerships with regional centers or in creating their own regional centers to diversify their access to resources in order to spur local economic growth.

Some key takeaways include:

• The program has attracted a minimum total of $4.2 billion in investments and supported the creation of at least 77,150 jobs. These minimums represent a static estimate based on the number of investors who have met the EB-5 requirements and who have been granted permanent residency to date. Less conservative methodologies, such as those used by USCIS to report program outcomes, put the minimum investment total to date (July 2015) at around $11 billion to $12 billion based on initial approvals for conditional residency. Economic modeling studies by the industry group Invest in the USA also show that the program has positive effects on GDP and tax revenue. The latest study found that EB-5 spending contributed $3.58 billion to GDP, created more than 41,000 jobs, and generated more than $805 million in federal and state tax revenue in FY 2013 alone. There have been no economic studies commissioned by the government on the EB-5 program’s wider economic impact since 2010, but USCIS has recently commissioned a new study to assess the program’s impact for FY 2012 and FY 2013.
• Assessing full economic impact and program outcomes has been challenging. Partly due to a lack of data collected and made publicly available on EB-5 projects, both nongovernmental and governmental entities have had difficulty verifying economic impact assessments. Audits have shown that while USCIS collects more complete information on EB-5 program forms, such as the total number of jobs created, the agency does not consistently report outcomes beyond the minimum requirements.
• State and local government interest in the Regional Center Program is growing. A growing number of states and localities are creating partnerships with regional centers or creating their own to attract investments to their communities. Michigan, Vermont, Hawaii, Iowa, and Pennsylvania, as well as the cities of Dallas, Miami, and Philadelphia, are just some of the municipalities with varying levels of involvement in operating regional centers. Many have already seen successful projects. In Philadelphia alone, public-private partnerships with regional centers have attracted more than $620 million in investments for now completed projects.
• The program’s regional focus provides valuable opportunities to states and localities, particularly on civic development and infrastructure projects. The program’s ability to provide long-term, low-interest capital that can complement existing public funds presents valuable opportunities for state and local leaders to address some of their public-spending projects, including in highly underinvested but critical public infrastructure and affordable housing. Many states and localities have already taken advantage of the program for such projects and several plan to do so.
• With increased security, functionality, and integrity, the program has great potential to support regional economic development. Considering its relatively limited size, the EB-5 program alone will not be the primary solution for the country’s most expensive and critical needs. However, with effective reforms to increase the program’s integrity, security, and functionality, the EB-5 program has the potential to provide for incremental but relatively significant opportunities for regional economic development.