Trade & Invest In America

EB-5 Investor Program: A Regulatory Takeover?

By Chad Ellsworth


The EB-5 Regional Center program has recently been expanded for a five-month period, from April 30, 2017 to September 30, 2017. This extension mirrors a long history of continuous periodic extensions, as Congress has endlessly failed to reach an agreement on the permanent direction and fate of the temporary program. Although there are many staff drafts proposed in the federal legislature to reform the program, investors should focus their attention on the regulation that has been proposed by the United States Citizen and Immigration Services (“USCIS”).

The proposed regulation was published in the Federal Register on January 13, 2017, and raises some significant considerations for potential investors. The current EB-5 Regional Center (“RC”) program has a $500,000 investment requirement for Targeted Employment Areas (“TEA”) and a $1 Million investment requirement for non-TEAs. These numbers have been in effect since the RC program’s enactment in 1990. In an attempt to modernize and update the RC program, the USCIS has proposed in its regulation, an increase of 170% for TEAs, raising the investment amount to $1.3 Million, and an 80% increase for non-TEAs, raising the investment amount to $1.8 Million.

Further, the proposed regulation imposes a strict and narrow definition of TEA by creating a national standard. Under the proposed regulation, urban TEA investment would be limited to areas that can demonstrate a weighted unemployment rate of at least 150% of the national average. Urban TEAs would be limited to a Metropolitan Statistical Area (“MSA”), a county, a city, or town with a population of more than 20,000, a census tract, or a group of contiguous census tracts. This differs greatly from TEAs under the current rule, which stands as a rural area or one that has an unemployment rate of 150% of the national average. The rule as it stands, furnishes individual States with broad discretionary authority to designate high unemployment areas, and set TEA borders that reflect local demographics. The outcome of the regulation would be to take the power of designating TEAs out of the States’ hands, vesting it in the agency instead, which would create one standard for all.

The majority of industry stakeholders are in agreement that the regulation is inadequate, and are hopeful that that this inadequacy will encourage the members of the congress to reach an agreement regarding the RC program, however given the political climate, there is still a concern over whether congress will come to an agreement on the RC or any other immigration program by September 2017. While stakeholders should stay informed on the proposed legislation that could potentially terminate or severely restrict the viability of the RC program, investors should continue to monitor the proposed USCIS regulation, which could come into effect in the near future.


Rulemaking Procedures- What You Need to Know:


The rulemaking process is a rather simple process, and can take less time than passing legislation, as legislation requires agreement amongst the House of Representatives and the Senate, and even then can still be vetoed by the President. Agencies are granted the authority to create the necessary rules and regulations required for the department through statutes enacted by Congress. Further, agencies must follow an open public process when issuing regulations, according to the Administrative Procedure Act (“APA”), which includes publishing a statement of rulemaking authority in the Federal Register for both proposed and final rules.

The proposed rule, or Notice of Proposed Rulemaking (“NPRM”), is the official document that announces and describes the agency’s plan. The NPRM must be published in the Federal Register to notify the public, and must give the public an adequate opportunity to submit comments and concerns.

Per the APA, after proper notice has been given, the agency must provide interested persons an opportunity to contribute to the rule-making process through submission of written data, views, or arguments. This is known as the comment period, and can range from 30 to 60 days, or longer for complex rulemakings. Agencies have wide discretion in how they choose to consider and respond to comments, but they must address serious material comments, so as not to render the comment requirement meaningless.

Agencies are forbidden from basing the final rule merely on the number of comments in support of the rule versus those in opposition to it. Rather, the agency has two options: (1) the agency may decide to terminate the rulemaking; or (2) the agency may continue the rulemaking but change aspects of the rule to reflect the issues raised. If the changes are major, the agency may publish a supplemental notice of proposed rulemaking, which would be followed by an additional comment period.

After consideration of the public comment, the agency may issue a final rule, which must include a concise and general statement of its basis and purpose. The rule must be published in the Federal Register, and shall not be made effective in less than 30 days after publication or service.


The Current Playing Field and Why We Should Focus On the Proposed Regulation:


Again, the proposed regulation was published in the Federal Register on January 13, 2017, and had a comment period, which ended on April 11, 2017. Although the comment period has ended, investors and interested parties are urged to submit late comments up until the revised rule is released. The agency is currently reviewing comments and preparing the revised edition. Given the confirmation of Mr. Lee Francis Cissna as the new Director of the USCIS, it is anticipated that the revised rule will be released in the near future absent legislative action. At his confirmation hearing, Mr. Cissna expressed his interest in finalizing the proposed USCIS regulation. Absent legislation, the revised rule has a high potential of being introduced as the final rule and may come into effect as little as 30 days after its publication in the Federal Register. As Congress continues its debate over the revision of the RC program, the USCIS regulation may swoop into effect, which is why it is highly critical for potential investors to closely monitor any agency action and understand the proposed regulatory changes before proceeding with a RC selection and I-526 petition filing.





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