Changes to the EB-5 programme: Spotlight shifts back to USCIS
By Chad Ellsworth, partner, Fragomen, Del Rey, Bernsen & Loewy, LLP
As yet another deadline for congressional reauthorisation of the EB-5 Regional Center programme nears, another short-term extension is likely. Discussions of legislative changes to the EB-5 programme have continued on the Hill with Senator Cornyn’s office taking the lead, and the previously released American Job Creation and Investment Promotion Reform Act of 2017 from Senators Leahy and Grassley now taken off the table. Given the other pressing priorities in Congress, substantive change to the program by legislation is not likely and the real impact on the program will likely come from proposed regulatory changes from the US Citizenship and Immigration Services (USCIS).
USCIS had proposed the new rule, EB-5 Immigrant Investor Program Modernization, DHS Docket No. USCIS-2016-0006, in January 2017, which includes an increase in minimum investment amounts, redefinition of the Targeted Employment Area (TEA) designation with restriction of urban projects, and priority date retention for the EB-5 category. Notice-and-comment period ended on 11 April 2017. In the absence of legislative changes, the final rule is likely to be published as early as February 2018. The proposed changes included in the proposed rule are discussed in detail below.
Priority date retention
USCIS proposes to allow foreign investors with previously approved immigrant petitions to retain their priority date for future petitions, absent fraud, misrepresentation, or a material USCIS error. Priority date retention would allow an EB-5 investor with a previously approved Form I-526 immigrant petition to maintain his or her place in the queue for an immigrant visa in the event that he or she must file a new I-526 due to circumstances beyond his or her control. The proposal is consistent with longstanding practice in other business immigration categories and is especially critical in light of increased demand for the EB-5 programme and the resulting visa retrogression.
For mainland Chinese investors specifically, as the visa retrogression gradually extends, priority date retention can help blunt the negative consequences of a material change in an investor’s initial investment or the termination of a regional centre.
Increases in EB-5 investment thresholds
The current minimum investment amount of $1m for non-TEA investments and $500,000 for TEA designated investments has been in effect since 1990. Thus, the agency proposes raising the minimum investment to keep pace with inflation and the real value of investments. The proposed regulation seeks to raise the minimum threshold for investment in a TEA to $1.35m, an increase of 170% from the current minimum of $500,000. The minimum non-TEA investment would be $1.8m, an increase of 80% from the current minimum of $1m. The proposed rule further includes a mechanism to automatically adjust the minimum investment amount based on the unadjusted Consumer Price Index for All Urban Consumers every five years.
In contrast, the legislative drafts from the Senate have proposed raising the TEA minimum investments from $500,000 to $800,000, and leaving the non-TEA minimum investment untouched at $1m with gradual increases over time to account for inflation. Many stakeholders within the EB-5 community have voiced concern over USCIS’s proposed investment amounts and expressed a preference for the Senate proposals. It remains to be seen whether the USCIS will adjust its proposed minimums in response to the comments submitted from EB-5 stakeholders.
Definition and designation of Targeted Employment Areas
Under existing rules, a TEA is a rural area or one that has an unemployment rate of 150% of the national average. States are vested with broad authority to designate high unemployment areas, and programme regulations allow officials to set TEA borders that best reflect local demographics. High-unemployment TEAs can thus extend across multiple census tracts and include areas that are geographically distant from an investment project but are consistent with regional commuting patterns and economic needs.
The proposed regulation seeks to impose a strict, nationwide formula for the designation of high-unemployment areas with the Department of Homeland Security (DHS) itself adjudicating the definition and designation of TEAs. The proposed formula would likely limit urban TEA investment to narrowly demarcated 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. If the rule is published as written, many large-scale urban projects that meet current TEA requirements would no longer qualify for EB-5 investment.
The proposed regulation indicates that increased investment thresholds and TEA redefinition would be applied only to Form I-526 immigrant investor petitions filed on or after the effective date of a final regulation. This is commonly read to protect pending I-526 petitions from retroactive application. The rule does not, however, contemplate any retroactive implications for EB-5 projects that were planned and commenced years ago in reliance upon the current programme, but have not filled all of their immigrant entrepreneur investment opportunities.
As USCIS does not have statutory authority to impose any new EB-5 rules retroactively, any retroactive rulemaking may be deemed impermissible. It remains to be seen how the executive agency will seek to revise the rule with care to ensure that unintentional, yet still impermissible, retroactive effects are avoided.
In light of the current priorities in Congress and the decreasing likelihood of passage of legislative changes to the EB-5 program, the EB-5 industry has re-shifted its focus to the regulatory proposal from the USCIS that is expected to be published as early as February 2018. While priority date retention is a welcomed change, interested investors would be wise to keep a close eye on the minimum investment amounts, and the impact of any TEA redefinition and retroactive application – intentional or not – on project selection.