THE EB

In 1990 Congress enacted the EB-5 immigrant investor program[3] and created a new Employment Based Visa (5^th preference) – the EB-5 program. Congress anticipated that the US could compete in the international market and secure its share of the billions of job-creating investment capital that was going to other countries, which has significantly contributed to their economies over the past 15 years, see Exhibit 1 for the Late Senator Paul Simon’s 1990 visions for this program. In 1990 Congress allocated 10,000 EB-5 visas to overseas investors and their family members[4] if they invest in a commercial enterprise that will benefit the U.S. economy and create or preserve at least 10 full-time jobs in or within two years. $1,000,000 is the required amount unless, the investment is made into a Targeted Employment Area[5] (TEA) where the amount is reduced to $500,000 per investor, plus fees and is competitive with other nations.

The Regional Center pilot program was enacted in 1993 to permit the counting of indirect jobs towards the investor’s fulfillment of the 10 job-creation requirement of the EB-5 Program. The ability to count indirect jobs is a crucial element for the qualification of real estate backed investments in this program. Real estate backed investments has long been known to be the preferred type of investment vehicle of the immigrant investor markets, as demonstrated by the experiences of Canada, New Zealand, and Australia. Through the pilot program, Congress sets aside 3,000 EB-5 visas each year for regional centers.

II. THE GAO REPORT REQUEST

Congress passed continuing and other amendments to this program in 2000, 2002, and 2003. Included as part of the last year’s EB-5 Regional Center extension legislation, Senator Feingold requested GAO[6] to Report on the EB-5 Regional Center program by 12/03.04 that shall include information regarding--

(1) the number of immigrant investors that have received visas under the immigrant investor program in each year since the inception of the program;

(2) the country of origin of the immigrant investors;

(3) the localities where the immigrant investors are settling and whether those investors generally remain in the localities where they initially settle;

(4) the number of immigrant investors that have sought to become citizens of the US .

(5) the types of commercial enterprises that the immigrant investors have established; and

(6) the types and number of jobs created by the immigrant investors.

The GAO has assigned the Report to their Homeland Security and Justice division and has appointed its team leaders who are assembling the team that will, on 12/3/04 or sooner, provide the “Report” to Congress. During the design phase GAO will further refine the scope of the Report in consultation with interested members of Congress. Upon completion of the Report, GAO will place on its web site for a period of up to 5 years, the progress of the agency in meeting the goals and objectives of this program.

III. EXISTING DATA

Data on the number of approved immigrant investors from INS Data up to 1999[7] shows: “participation in the investor program has been far below the numerical limit since the inception of the program, both in terms of petitions received for investor status and immigrants admitted as investors.” INS data together with the recent data from 1999-2002[8] provides a preliminary estimate of approved petitions as follows:

Table i. estimated EB-5 Petitions Approved 1992-2002

FY Received Approved Denied Conditional Immigrants[9]

1992 474 240 40 24

1993 436 384 170 196

1994 513 407 82 157

1995 356 291 109 174

1996 801 616 122 295

1997 1,290 1,110 141 436

1998 1,368 358 290 N/A

1999 600 252 1,599[10] N/A[11]

2000 231

2001 189

2002 148

4,226 Estimated Number of EB-5 Visas Approved

INS stated on investor origin: “Participants in the investor program have come primarily from Asia , with countries from that continent accounting for 81 percent of all immigrant investor admissions during fiscal years 1994 through 1996. During that period, an additional 9 percent of investors came from Europe, and 5 percent came from South America .” [12]

INS stated on investor domicile choice showed: “Immigrant investors, like other immigrants, tend to concentrate in certain parts of the United States . During fiscal years 1994 through 1996, 44 percent of all immigrants admitted as investors reported that they intended to live in California, followed by 9 percent destined for Florida, 7 percent to the State of Washington, 6 percent to Texas, and, and 5 percent to New York.”

Regarding Backlogs the INS said: “The INS has made EB-5 backlog reduction a priority, and expects that by March 31 (1999) the backlog will be significantly reduced, if not eliminated. All trained adjudicators are being utilized in this effort, and additional special training is planned in order to reduce the backlog[13].

A review of the existing data based on the Congressional priorities is as follows:

(1) the number of immigrant investors that have received visas under the immigrant investor program in each year since the inception of the program;

Preliminary data suggests that less than 5,000 have had visas approved; since inception 10 years, out of 100,000 available. Visa approval data should be relatively easy to collect for the past 10 years. Probably no data exists for 90, 91, or 03 yet, but the preliminary data is revealing;

(2) the country of origin of the immigrant investors;

Preliminary data suggests 80% come from Asia . This data comports with Canadian and Australian statistics. China alone has the largest market that and could satisfy the US appetite for immigrant investor capital for the foreseeable future.

(3) the localities where the immigrant investors are settling and whether those investors generally remain in the localities where they initially settle

Preliminary data showed destination choices as: CA 44%, FL 9%, WA 7%, TX 6%, and NY 5%. For purposes of this program, investors don’t have to live where the jobs are created.

(4) the number of immigrant investors that have sought to become citizens of the US .

Does it really matter whether the investors sought citizenship to meet the purposes of the program? America wants access to their capital to create “non-exportable” US jobs. Therefore, I recommend that this be tied as a 6^th ranked priority.

(5) the types of commercial enterprises that the immigrant investors have established.

The types of commercial enterprises that were established over the past 10 years may be meaningless because: 1) INS, through their narrow interpretation of a “job” prevented the US from offering real estate backed investment opportunities – the global investment vehicle choice of the Asian immigrant investor markets; 2) many “commercial enterprises” were concocted by former promoters and their INS experienced attorneys in response to inefficient and inconsistent regulations that resulted in insufficient capital ending up in the “commercial enterprise” that any job-creation numbers, verified by I-9’s and payroll records, were made for INS reporting purposes and thus any extrapolations based on this data is likely suspect. Therefore, I recommend that this be tied as a 6^th ranked priority.

(6) the types and number of jobs created by the immigrant investors.

The number and types of jobs created are a mandatory 10. Assume 5,000 visas were approved over 10 years some 50,000 jobs were created on paper. Whether we know what types of jobs are described in the files is also likely meaningless because of the changing INS definition of “job.” There are many new statutes for which regulations have not yet even been written that make this task a questionable priority. A review of past high volume investment programs, many now defunct, will likely reveal the bulk of investors went into programs that were characterized by: the availability of development of I-9 and payroll records required to satisfy INS, high fees, low cash available to the business, even though all were legal by INS at the time. Therefore, I recommend that this be tied as a 6^th ranked priority.

IV. ECONOMIC IMPACT AND ANALYSIS

The economic impact of the Regional Center program on the US economy is shown in Table 1. In the first instance, if all 3,000 of the EB-5 Regional Center were utilized or the program “maximized” under existing and recently amended statutes, the program has the potential to attract some $1.5 billion in overseas investment capital that will result in $4.5 billion in inner city and rural (TEA) investment annually and create some 120,000 jobs. In the second instance, if Congress enacted a legislative change that increased the set-aside for regional centers from 3,000 to 30,000, it could increase domestic capital investment to $13.5 billion annually and create over a million new jobs annually. According to CIS, the agency adjudicates 30,000 applications each business day, Table 1 shows the economic impact if they were all regional center visas?

tABLE 1. Economic Impact by NUMBERS OF Visas Utilized[14]

Assumptions: NUMBER OF VISAS

A. Regional Center Visas:		3,000[15]	30,000[16]	100,000
Amount of EB-5 RC Investment:	$600,000
Less US fees and Expenses:	$100,000
B. NET Investment/Investor/enterprise:	$500,000	$500,000	$500,000	$500,000
C. Permitted EB-5 Investment Capital[17]:		$1,500,000,000	$15,000,000,000	$50,000,000,000
D. Leverage of equity/debt (3 times)[18]:		3	3	3
E. Total new investment US TEAs:		$4,500,000,000	$45,000,000,000	$150,000,000,000
F. % Trade Deficit with China for 2003[19]:	$120 billion	1.25%	12.50%	42%
G. EB-5 Job-Creation Requirement:		10	10	10
H. Jobs Created only from EB-5 Capital:		30,000	300,000	1,000,000
Leveraged Capital:		3	3	3
I. Jobs Created from Leverage:		90,000	900,000	3,000,000
J. Jobs Created only from EB-5 Capital:		30,000	300,000	1,000,000
TOTAL JOBS CREATED:		120,000	1,200,000	4,000,000

In the last instance, Table 1 shows the impact that 100,000 visas, available since 1992, would have had were such visas approved. Thus, the current 10,000 visas can conservatively be estimated, just counting regional center visas alone, at providing $1.5 billion in new EB-5 job-creating equity capital which is $15 billion over the 10 years the program has been operating. Total capital spending is more or less $1.5 billion annually so capital spending would have risen an extra 1% per year, using the standard types of economic relationships that would have boosted productivity - real growth by an extra 1/3% per year. Another perspective is that would have increased real income by an extra 1/3% per year. Since there are approximately 140 million people in the labor force, that would have boosted employment by about 467,000 per year. Additionally, the US economy would have had all the benefits from higher productivity in terms of being more competitive in both domestic and world markets.

To facilitate the potential of the program, last year Congress passed an amendment permitting CIS/DHS to grant a “priority to petitions” filed under the regional center program for economic development. This is significant because for the first time in history visas may be allocated based on benefit to the US economy and job. This is consistent with the President Bush’s proposed new bold immigration laws in which he states: “Second, new immigration laws should serve the economic needs of our country” and “Third; we should not give unfair rewards to illegal immigrants in the citizenship process or disadvantage those who came here lawfully, or hope to do so.” He went on to say in 1/7/04: “The citizenship line, however, is too long, and our current limits on legal immigration are too low. My administration will work with the Congress to increase the annual number of green cards that can lead to citizenship.

V. RECOMMENDATIONS

GAO and Congress may consider the following recommendations for areas of Inquiry:

A. Management of the EB-5 Regional Center Program –Management has cited that “ownership” of the various DHS participants to the program are not coordinated or centralized. The tasks associated with this program are: Interpretation of the Statutes, Responses to the requests of existing and new regional centers applicants; Responses to the requests from States for acknowledgment of State authorities authorized to make TEA Designations, and Management of the Regional Center Adjudicators and Regulation Promulgation.

Are there qualified people experienced in economic development programs available to manage this program? EB-5 law suits, including deposition of INS personnel may suggest a need for qualified managers and analysts. For example, an adjudicator for regional center visa applicants must be familiar with the methodology States use to calculate unemployment rates from the Department of Labor and Commerce’s statistics provided monthly and understand the role of the census data in determining eligible geographic Targeted Employment Areas that reduces the investment amount from $1,000,000 to $500,000. Further, this data is then fed into complex econometric models that determine indirect jobs created by the EB-5 investment – far beyond the average adjudicator’s knowledge.

Are the TEA and indirect job analysis to be done by an experienced economist at CIS who essentially signs off on these points for the adjudicator? How many adjudicators will be assigned to the regional center program? Will CIS implement the “priority powers” Congress provided to the adjudication of regional center visas? Should the business aspects involve; EDA, CDFI, SBA, or Labor such as is currently done with the labor certifications? Those proposed Amendments exist but were shelved after 9/11.

B. A Lack of Regulations -- Congress has promulgated new statutes for the Regional Center program in 2000, 2002, and 2003 for which there are no regulations yet written. As such, the definition of key elements of the program such as definition of Sponsor, Indirect Job Measurement (see Exhibit 2), geographic rights of a regional center and, accountability issues have rendered the program inoperable. There needs to be a development of regulations by people experienced in managing economic development programs and has a business experience. After 10 years of evolving INS definitions of “job” shouldn’t this task be completed by now!

C. The Adjudication Management and Process --The 2003 amendment permits a prioritization of the adjudication of EB-5 regional center visas. This could facilitate CIS’ goal of providing a 60 day turn around time for regional center petitions. To facilitate the adjudication process, Regional centers have worked with CIS to:

pool groups of investors into a specific investments that reduces an adjudicator’s time in analyzing the geographic location and indirect measurement of jobs created, as only one project needs to be evaluated and is applicable over many investors.
provide independent third party due-diligence investigations of the sources of capital used by investors for the investment, thereby increasing the level of “comfort” for adjudicators as to the propriety of the source of funds used for the investment.

For its part CIS has indicated willingness to:

establish a CIS intermediary who will respond to a regional center’s attorney representing the pool of investor, to answer Requests for Evidence (RFE), including electronically, and other questions pertaining to the investor’s I-526 and I-829 and;
Communicate with Regional Centers.

What is the reasonable time expect CIS to do its part? For a list of additional management questions see Exhibit 3.

D. Coordination with Other Agencies – The EB-5 Regional Center program of CIS in the Department of Homeland Security must work with the following departments:

The Department of State because of their approval and issuance of visas;
The Department of Labor because it provides part of the unemployment numbers required for determining TEAs under this program and because they have the potential to play a role in the job certification process in a manner similar to the H1-B program of CIS/DHS if Congress so elects;
The Department of Commerce because of the involvement of the Census Bureau that contributes to the TEA methodology as well as their involvement in the development and provision of methodologies for counting indirect jobs from EDA and/or BEA, a current subject with CIS.

V. CONCLUSION

Under existing laws, the EB-5 Regional Center program has the potential to represent a new direction for immigration that embraces the President’s new immigration initiative to consider the benefits to the US economy in the allocation of visas. This program:

· Is consistent with the President’s immigration agenda. For the first time in history, the US has the opportunity to consider the allocation of visas based on benefits to the US economy – Increased Domestic Capital Investment and Job-Creation.

· Has the potential to infuse $1.5 billion in job-creating equity capital into America ’s neediest communities through Corporate America that will leverage EB-5 regional center capital to $4.5 billion in annual investment.

· Needs no additional laws; in fact, it already has a precedent setting provision to allocate a priority to the adjudication of regional center visas.

· Has the potential to infuse $1.5 billion of patient job-creating capital into the poorest areas of the American economy at no cost to US taxpayers.

· Is ready-to-go, Corporate America has been prepared for the past 3 years but needs DHS/CIA approvals to access this overseas capital market.

· Has a ready market in Asia, with China the largest market that could fulfill the US need for job-creating equity capital for the foreseeable future, if permitted to do so.

· Is known to China and could facilitate the flow of capital to the neediest areas of the US economy.[20]

The Regional Center Pilot Program enacted by Congress last year embodies the President’s recent immigration initiative by considering “benefits to the US economy” in the allocation of visas. The law states, each such EB-5 investor must invest a net of $500,000 into as US business and create 10 jobs. Congress recently passed a historic amendment that permits CIS to give Regional Center EB-5 visa applicants a “Priority.” This should represent all that President Bush hoped Congress might pass with one exception; the laws are all already passed! It only needs the will to implement this program.

VII. AFTERTHOUGHTS

As the government's budget deficit nears half a trillion dollars, and is getting bigger, SOMEONE HAS TO PAY FOR THAT DEFICIT! If the US economy is not to choke on its own debt, it will have to attract foreign investors. The EB-5 program presents almost a unique opportunity to have foreigners pick up some of the bill.

Asia's largest economies are aggressively sinking the spoils of their trade surpluses with the US into the purchase of US assets financing much of the widening U.S. federal budget deficit. Moreover, foreign investment in the United States -- whether through the purchase of Treasuries, stocks, real estate or other assets -- finances the much broader U.S. current account deficit, the amount by which Americans spend and invest more than they produce and save, or more generally the degree to which they go into debt to foreigners in order to live beyond their current means.”

China , responding to pressure to reduce its $120 billion trade surplus with the US , has announced the purchase of billions of dollars worth of American goods and reflect China 's aversion to a trade war. As China 's purchasing power expands, it will buy more and more from other countries and will shift more and more of its purchasing to the United States . However, many US businesses have yet to feel the affects of such desires. While attention is often focused on the $438 billion China exported, Southeast Asia sees the other side of the glass – “the $418 billion worth of goods China imported last year, with the region’s economies capturing a disproportionate share of the spoils.”[21]

American businesses want access to the Asian immigrant investor capital markets. Canada and Australia give what the Chinese-Speaking markets want – real estate backed investments. “If Chinese-Speaking Asians are buying up US assets, why not make them Americans? While the US has other interests with China – North Korea ’s nuclear program, terrorism, Taiwan ’s status – our political relationship depends on our economic relationship. If the economic costs seem too great, they will poison the politics[22].”

To increase employment, Asians keep their exchange rates artificially low and sell cheap goods to the US -- in the process accumulating surplus dollars. It is estimated “that there are 200 million underemployed Chinese who must be integrated into the global economy over the next 20 years. The speed of employment of this group is what will in the end determine the real exchange rate." “In spite of the growing U.S. deficits, this system has been stable and sustainable," because, citing a 1965 comment of French analyst Jacques Rueff about why the US prospered under the old Bretton Woods regime despite its big trade deficits: "If I had an agreement with my tailor that whatever money I pay him returns to me the very same day as a loan, I would have no objection at all to ordering more suits from him."

“Some argue that a weak Chinese currency is good for the world: It keeps Chinese growth high and allows the country to manage its breakneck modernization without a social blow-up. So what if China is running a large trade surplus with the United States , the argument goes. China needs to create jobs a lot more urgently than the United States does.[23]”

China relies on demand from the US to maintain the rapid growth needed to reform the economy. However it is a two-way street as the U.S. needs China , too. U.S. companies have turned to China as a means of cutting costs, increasing sales and profits; however, more than half of Chinese exports to the US are produced by factories wholly or jointly owned by American companies.[24] Investors also need China . American businesses want and need access to the Asian immigrant capital markets. There is a willing market and we should access this capital now!

Right now there is plenty of liquidity in the system, as noted by the 1% Federal funds rate and the 4% 10-year Treasury note rate. But no one expects these low rates to last as the U.S. economy returns to full employment. Thus, over the next several years, as interest rates rise, inflows of foreign capital will become increasingly important. The expansion of the EB-5 program will coincide closely with that additional need for capital. An expansion from the 3,000 set-aside visas to 30,000 for regional centers would put the US or a par with other nations in competing for immigrant investors – as intended by the promoters of EB-5 Program, including its Regional Center Program.

During 2003, the reason interest rates remained low in spite of our massive budget deficit is because Japan spent an estimated $200 billion buying Treasury securities to keep the dollar from weakening further relative to the yen. But one of these days -- like late 2004 -- interest rates are going to rise and the dollar will start to strengthen again, and then the Japanese won't feel the need to pour $200 billion per year into Treasuries and THEN who will buy them?

The answer is you have to look at who the U.S. has the biggest trade deficit with and obviously that's China . So when interest rates start to rise and Japan stops purchasing such a large proportion of our deficit, Chinese funds will be even more important. This program is “ready-to-go” and is poised to address this problem, if it were an Administrative “priority.” The jobs associated with new developments in the poorest rural and urban areas of the US are jobs that are not easily exported like a software engineer; they are US construction and related jobs that are essential to create housing, offices, service and support businesses and the like.

For the past 3.5 years, Abacus and Corporate America have been encouraged by the Administration to proceed and seek investors. We now know we can and have identified a large “well” of immigrant investor capital willing to trust Corporate America with the investment management that will create US jobs. The question is when will this program be truly operational and what will it take to make the US compete with Canada and Australia for job-creating capital Congress intended for American’s neediest communities?

END

Exhibit 1.

Senator Paul Simon 136 Congressional Record. S17, 106, S17, 112 (daily ed. Oct. 26, 1990).

"One section of the bill that I am particularly pleased to have had included from my original bill is the employment generating investor visa provision. Following the recommendation of the Select Commission, the bill establishes a new visa category for entrepreneurs who are willing to contribute to America ’s economic growth and provide new jobs for Americans by investing in new American enterprises. This one provision will generate over $ 8 billion annually in new investment in small and independent U.S. businesses and provide up to 100,000 new jobs for Americans -- two goals which we need to pursue as quickly as possible.

"This provision in the overall compromise bill is one for which there are no currently applicable INS procedures. It is a step into the future for immigration. Accordingly, I encourage the Department of Justice in promulgating regulations expeditiously and administering this provision to work closely with the State Department and the Commerce Department who have familiarity with international and commercial considerations that the Immigration Service has not traditionally had the occasion to have full familiarity or expertise. Similarly, although this provision is not completely parallel to foreign investor visa programs, I hope we can learn from and build upon the track record and experiences of the Governments of Canada and Australia who have had great success in attracting talented people through their investor visa programs.

"In enacting the investor visa program, we want to attract entrepreneurs and job-creators into the U.S. economy, and as long as their investment is legitimate, we do not want or need excessive or arbitrary industrial policy tests about what constitutes a worthwhile investment. For example, the bill requires investor immigrants to start new firms. But this should not be intended to preclude an investor starting that new company from utilizing the existing assets of a failed enterprise. We should encourage and not cripple the creativity of these enterprising immigrants.

"Our bill distinguishes among investors in only one way. The general rule -- and the vast majority of the investor immigrants will fit in this category -- is that the investor must invest $ 1 million and create 10 U.S. jobs. However, we are mindful of the need to target investments to rural America and areas with particularly high unemployment -- areas that can use the job creation the most. For this group, we make available at least 3,000 visas annually. America 's urban core and rural areas have special job creation needs and this visa program is sensitive to that in this way. Investments in this area must still create 10 jobs but require an investment less than $ 1 million. The Attorney General is authorized to set the required investment at a lower amount but at least $500,000. Clearly, the closer the Attorney General sets this to $500,000, the more we can encourage investments in these critical areas. The third circumstance the bill envisions is for areas that have significantly lower unemployment levels than the national average. For these areas that are not rural and do not have pockets of high unemployment within them, the Attorney General can set a higher required investment amount.

"Neither the Senate nor the House bill established any sort of criteria about the type of business investment. The only guideline is that the investment minimums must be satisfied and the venture must employ at least 10 people for 2 years. This makes good sense. As long as the employment goal is met, it is unnecessary to needlessly regulate the type of business -- manufacturing, service, retail or the like -- nor the character of the investment. Corporations, partnerships, proprietors -- all legal types of business entities -- are appropriate as long as the immigrant invests at least $ 1million and creates 10