Ever since Congress passed a temporary extension of the EB5 Investor Visa Program on September 30, 2015 allowing the program to continue to run until December 11, 2015, there has been speculation regarding the possibility of significant reforms to the program. Since its first implementation in early 1990’s, the program has been reauthorized six times, each time without any major changes. What should we expect this time? The general expectation is that this extension, in a break from historical precedence, will not simply be a routine reauthorization. New legislation with significant reforms in several segments of the program has been proposed in the Senate Bill 1501 (American Job Creation and Investment Promotion Reform Act). The bill proposes the reauthorization of the EB-5 Regional Center program for five years (until September 30, 2020), but would alter the program in several important ways.
First, the bill proposes to alter the minimum investment requirements. Under current law, the minimum investment requirements now varies from $500,000 (if invested in Targeted Employment Area – TEA) to $1,000,000, depending on where and under which conditions investors decide to put their capital. The minimum investment requirements have never been discussed during the previous extensions, but it now appears that Congress intends to review these requirements in order to take into account inflation and other economical indicators that have changed in the 20+ years since the program went into effect. The new legislation proposes to change the starting amount to $800,000 for investments in a TEA and $1.2 million for other investments. Because of this, many foreign nationals are scrambling to submit their I-526 petitions before the last day of the extension period in order to avoid the increase of the minimum investment amount.
Second, the legislation seeks to alter the definition of a TEA and low risk investments. Under current law, Regional Centers are able to “stretch” the rules in such a way that virtually any geographical location in the United States could qualify for TEA status by gerrymandering census tracts around the area of the planned project implementation to create high unemployment areas. These rules allow large enterprises to create projects in central areas of big cities and attract people through low-risk investments. The new bill requires more careful consideration regarding which areas are eligible for the minimum investment. In other words, there will be fewer “cheap” options for investors. This is another reason why foreign investors are trying to “jump” in the process before December 11.
Third, the proposed bill seeks to alter the job creation requirements of the EB-5 program. Under current law, a Regional Center must create 10 jobs, but these jobs can be created either directly or indirectly. There are no specific rules on how many of these jobs need to be “direct” vs. “indirect.” The new bill proposes to include rules mandating a minimum percentage of “direct” jobs that must be created by a Regional Center. Most of the ongoing projects meet the job creation rule by creating more indirect jobs than direct jobs. Consequently, reform will likely reduce the number of the low investment projects, as most of the ongoing low-risk projects will not be able to create the minimum number of the direct jobs required.
We will know more closer to the middle of December 2015, but what we can tell for sure is that EB5 program will almost certainly undergo changes that could have a significant impact on investors in terms of the number of applications and the projects in which they will be investing.