House Hearing Questions EB-5 Gerrymandering, Security

US Capitol

WASHINGTON, DC—This past month, the US Senate and the US House of Representatives’ respective Judiciary Committees have held a hearing on the EB-5 program, which Congress passed in December’s Omnibus spending measure unchanged — but with the clear promise that reforms are coming. If anyone had their doubts, the full-committee hearings should have dispelled them — especially the hearing held in the House last week.  Everything, from the title of the hearing “Is the Investor Visa Program an Underperforming Asset?” to the witnesses providing testimony (two of the three were advocates for reform of the program) to the opening statements from the committee heads all highlight the irritation Congress has with the program in its current incarnation. Gerrymandering TEAs The chief target of the committee’s ire was the so-called gerrymandering that developers purportedly use to draw the most oddly-shaped TEAs, or targeted employment areas, for their proposed projects. Basically, the argument goes, developers deliberately draw TEAs to include prosperous areas. In his opening comments, Chairman of the Judiciary Committee Congressman Bob Goodlatte provided a particularly egregious example. This was, he said, a TEA drawn by a proposed developer of a hotel and conference center in Laredo, Texas.

A map introduced during the hearing by Judiciary Committee Chair Bob Goodlatte illustrating what he said was one company’s proposed egregious gerrymandering.

The site of the project was located in a US Census tract with a 1.4% unemployment rate, far below the 12.5% required for a TEA, Goodlatte said. So the developer drew a TEA that stretched 200 miles to the high unemployment area of Brownsville, Texas to make the numbers work. “$500,000 is Chump Change” The committee also cited the minimum investment amount of $500,000, which was deemed far too low, especially given that TEAs were being manipulated. Singapore and the UK, in similar programs, have much higher minimal amounts, one Congressperson pointed out. The most compelling comment was made by Congresswoman Sheila Jackson Lee (D-Texas), who called $500,000 “chump change” for a high net worth investor seeking a US Visa. No Data to Identify Fraud Concerns about fraud and US security were also high on the list, along with the suspicion that the Department of Homeland Security is not vigilant enough about these dangers. One of the witnesses was Nicholas Colucci, chief of the US Citizenship and Immigration Services’ Immigration Investor Program. Not surprisingly, given the committee’s mood, he was on the hot seat for much of the hearing To give the committee its due, most of the questioners apologized to Colucci in advance, acknowledging he was just representing his agency. And to give Colucci his due, he dispatched fairly well. Many times the called out, as best as he could with Congress controlling the questioning, what he felt were inaccurate depictions of DHS policy. The most interesting example was his questioning of Goodlatte’s opening example of the gerrymandering in Laredo, Texas. The DHS, Colucci said, had been unable to find a record of this project. His most oft-repeated response, however, was that DHS was working on gathering more data that would address some of these issues. “USCIS is working to refine data systems to better collect program performance data and has entered into an agreement with the Department of Commerce to conduct a valuation study of the EB-5 program which we expect to receive in the second quarter of FY2016,” he said in his testimony. What USCIS did know about the program’s performance thus far included, he said:

• That at least $8.7 billion has been invested into the US economy through the EB5 program since October 1, 2012

• That an aggregate total of an estimated 35,140 jobs have been created for US workers through foreign investment via the EB-5.

These are rough numbers, Colucci said. Manipulation of Job Creation Data “Rough” is putting it kindly, committee members all but said. Goodlatte and others questioned the job creation data, noting that foreign investors could claim all the jobs created by a program as due to their investment even if those jobs were largely due to the US participants. Goodlatte also pointed out that the $500,000 minimum investment is not indexed to inflation. Because of that, the real value of foreign investment through this program has fallen by 50% over the years, he said. He also said that DHS had the power to change that. Here, we should note that when Colucci testified before the Senate Judiciary full committee at the start of the month on EB-5, many of the same points were made. During the Senate hearing Colucci agreed that investment levels could be increased by DHS through regulation under the Administrative Procedures Act. He also said that USCIS was working on this and other issues, such as developing a more standardized way for TEAs to be drawn. The House Introduces Legislation At this point, though, few Congress people may be willing to let DHS handle it. The prevailing sentiment in the House hearing seemed to be a thorough reform of the program by Congressional legislation. What that legislation will look like, in the end, of course remains to be seen. But the process started on Feb. 10, 2016, with the introduction of H.R. 4530 ,  the EB-5 Integrity Act of 2016. Introduced by Representatives Jared Polis (D-CO) and Mark Amodei (R-NV) the bill is a companion bill to Senate’s EB-5 Integrity Act of 2015. It lays out some ground rule reforms to EB-5 but nothing on par with some of the ideas that the committee members and witnesses tossed about. And Harder Suggestions Are Offered These ranged from the broad-based to the very specific, including Geographically-anchored TEAs. “Labor is always mobile, an area is not,” is how one of the witnesses, Matt Gordon, CEO of E3 Investment Group, put it. The market will kick and protest, he said, but ultimately it will adjust. A $2 million minimum investment. Investors in rural or very low-income areas can be rewarded by going to the front of the line for the visas. An agreement that does recognize that workers do commute from low-income areas to more prosperous ones (one of the arguments used by the so-called gerrymanderers). It is a legitimate one, some of the committee members said. More granular information about the jobs being created under the program. Ranking Member John James Conyers, Jr. pointed out at one point that, “we don’t know if these jobs are paying a living wage, offer long term employment and whether they have actually benefited workers from the distressed communities.”