On January 13, 2017, the Department of Homeland Security (the department under which the USCIS is housed), published a Proposed Rule called “EB-5 Immigrant Investor Program Modernization” on the Federal Register.
Proposed Rule Changes
I plan to separately discuss the specific rule changes in separate posts but in a nutshell the main changes are:
1. Minimum investment amount for TEA projects (i.e. nearly 99% of all projects) will go up from current $500,000 to $1,350,000; non-TEA investment to increase to $1,800,000 from current $1 million. (And these numbers will be adjusted every 5 years.)
2. DHS will take over the TEA designation process which is currently made by individual states.
3. Investors who have approved I-526s but haven’t received their greencards yet (i.e. Chinese investors caught up in the backlog) will be able to switch projects and still keep their old Priority Dates and not have go to the end of the line.
Let’s put aside #2 and #3 for a minute and focus on the fact that the minimum amount is finally going up. For real.
Congress vs. USCIS: What is the Difference?
Since the so-called Grassley Bill was first introduced in June of 2015, there have been no fewer than five separate bills attempting to increase the $500,000 figure to different numbers ranging from $650,000 to $1 million. Of course, as we know, none of these bills have been passed (or, rather, even made it to a vote). I even heard that some people in China were thinking all these “threats” of imminent minimum amount increase was some sort of marketing gimmick to drive people to invest. (Kind of like those Going Out of Business stores on Broadway in Manhattan that bait out-of-town tourists!)
The USCIS was already saying as early as 2014 that it was working on new EB-5 regulations (including increases to the minimum amount). But it seems that with the flurry of activity in Congress starting in 2015, the USCIS took a step back and decided to wait for Congress to change the laws.
Because Congress is the legislative branch (the branch of the government that makes the laws) and DHS/USCIS is part of the executive branch (the part of the government that implements and administers the public policy embodied by the laws that Congress makes), to have Congress change the EB-5 laws makes the program more stable as opposed to the DHS/USCIS changing the regulations that govern the program.
But as it began clear that Congress would have a hard time passing any laws in an election year, the USCIS indicated as early as spring of last year that it was going to increase the minimum amount by issuing new regulations.
And that is what they did last week.
What is the Federal Register?
As you can imagine, there are many, many rules and regulations involved in the running of a country, and many of these rules are changed or introduced on a daily basis. And because these rules and regulations affect people in big ways and small, the government is not allowed to change existing rules without letting the public know and giving us a chance to provide feedback.
The Federal Register is the daily publication of the federal government where all of these changes are made public.
So what happened last week was that the DHS/USCIS finally finished putting together new EB-5 rules and made those rules public with a 90 day comment period ending on April 11, 2017. (By law comment periods can’t be shorter than 30 days and some complicated proposed rules have periods as long as 180 days.)
And that is why this is not another cry-wolf situation that will go away. These rules are here to stay and at some point will become effective after April 11, 2017.
When will the new rules take effect?
There will be an enormous push back on the increase from $500,000 to $1,350,000 in TEA areas – this will effectively shut down the EB-5 program in the mid to short term – so the final number might or might not be lower. But in any case, after such public feedback is digested and adjustments made to the current draft, the government will then issue a Final Rule which will most likely go into effect in 30 days.
Exactly when the Final Rule might be put into place, we don’t know yet. But we can assume that it would take at least a couple of (a few?) months as the DHS/USCIS must publish a full response to all of the issues raised by public comments.
Is there any chance that the rules will not go through?
In the interest of completeness, it is worth noting that there are two plausible scenarios where these proposed regs could be derailed.
First, Congress could actually get around to changing the laws which would override these proposed rule changes. The current Regional Center program is up for extension on April 28, 2017 and some people still believe that Congress will try to change the laws in conjunction with the extension. (I personally think that it is a stretch to expect Congress to deal with EB-5 so soon after a new administration is put into place as there are so many more pressing legislative issues that need to be tackled.)
Second, the incoming Trump Administration has been threatening to undo many agency regulations implemented by the Obama Administration. This is actually possible because of an, until recently, obscure law called the Congressional Review Act (CRA) of 1996 that allows for expedited undoing of agency regulations. That is the basis of the rumors that you might have heard about Trump “undoing everything”.
But from what I can tell, most of these rules that the new administration is looking to undo seem related to environmental regulations (sigh). Considering how politically controversial the invoking of the CRA is right now, I find it difficult to imagine that weapon being wielded to undo USCIS regs that aren’t even that controversial. (But then again, many things I found “difficult to image” is happening right now, so don’t take my word for it.)
So what will the final number be?
As mentioned above, during the past two years, the new number for TEA investment introduced have been somewhere between $650,000 to $1 million. The $1.35 million number in the proposed rules completely came out of left field. The justification for this number in the proposed rules is based on a formula taking into account inflation of the past 25 years. However, it seems that the rule makers overlooked the fact that 25 years ago, the program was so unpopular, Congress was forced to introduce the TEA concept to bring down the investment amount to make it feasible. So unless the goal is to reduce EB-5 to levels of the early 90s, using inflation as the measuring stick, while it sounds rational, doesn’t make sense.
There are other arguments I can think of (ex. comparison with investment immigration programs of other countries, for one) that support the need to bring down the proposed numbers to make the EB-5 program workable and in the next 90 days multiple parties will be submitting similar thoughts I believe.
So while I personally think the final numbers will be lower than the proposed numbers, it is hard to predict. And whatever that number is going to be, it will still negatively affect the market in the short run, which is something that really can’t be avoided.