EB5 Investors Magazine English Edition Volume 6, Issue 2 | Page 119

FACTORS OF RETROGRESSION The root cause of the program’s visa numbers problem reflects a combination of two factors: the unprecedented success of the EB-5 program over the last five or so years, and the way the U.S. Department of State counts (and limits) employment-based immigration program visas for certain countries. Regarding the first, the EB-5 program experienced unprecedented levels of interest in the aftermath of the U.S. “Great Recession”—when traditional sources of capital to fund projects dried up in the aftermath of the national financial crisis. Over the first roughly 20 years of the EB-5 program’s activities, inves to r in te res t in th e E B - 5 P ro g r a m n eve r c a m e anywhere near using the total number of visas available to the program or to any single investor-sourcing country. That all changed when interest in the program grew, and EB-5 capital became an attractive source of capital used as substitute for ver y expensive, mezzanine-type equity capital. As a result, the EB - 5 program is now being impacted for its record of success— for ge ne rating multi - billions of dollars in job-creating investment capital for hundreds of development projects. Inde e d , ove r the las t five years, EB - 5 has become one of the U.S.’ most significant merit- based immigration programs, even against the backdrop of well - publicized stories of a few “bad actors” in the program. Regarding the second and in the opinion of many, the U.S. D e pa r t m e n t of S t a te (DOS) has been adding “insult to injury” to the above because of the way it has historically counted, and in many ways unnecessarily limited, the visa numbers it allows per country in the employment-based categories. The EB-5 program is limited to just under 10,000 each year. Fu r the r, for famil y - base d and e m ploy me n t- based programs, the DOS has over the years allowed no more than 7 percent of the total annual allotment to go to any single country. Along with the DOS’ historical interpretation that spouses and dependent children mus t be counted agains t the per countr y cap, this approach to counting visa caps has severely limited the number of visas available to actual EB-5 investors to only about one-third of the level that could otherwise be possible if the visa numbers only applied to actual EB-5 investors. Critics point out that the DOS’ visa counting approach is nowhere to be found either in the law or in any duly-adopted program regulation. They suggest that the DOS’ way of counting visas is simply a convention based on a flawed reading of the law and legislative intent over the years. This concern last July led to a widely-publicized class- action lawsuit, filed by 450 mainland Chinese investors and joined by at least one active regional center, challenging the way the DOS counts the spouses and children of investors (called derivatives) against the roughly 10,000 annual visa quota. The lawsuit explains that because the DOS counts each immediate family member of an investor against the annual 10,000 visa quota, this severely restricts the number of visas subject to the limits that actually go to investors. This DOS interpretation significantly increases visa wait times and thereby reduces the potential additional positive economic impact of the program which could be more effectively realized by c ounting only the investors’ visas against the annual visa limit. If the lawsuit prevails (or perhaps compels a policy change), instead of discouraging foreign investment by limiting the number of investors to only about a third of the annual visa limit total, a greater number of visas would be available for the project investors themselves. This would ideally l ead to a sig nif ic a n t reduction in the current visa backlog that is currently extending wait times and discouraging new foreign investment under the EB-5 program. THE PROGRAM’S ECONOMIC IMPACT To understand the economic significance of having an unconstrained EB -5 program, one peer- reviewed study of the contribution to the U.S. economy by the EB-5 program comes from the industr y group Invest i n t h e U S A ( I I U S A ). T h e I I U S A s t u d y, w h i c h w a s conducted by the Center of Economic and Business Research at Wes te rn Washing ton U nive rsit y, estimated that the EB-5 program over the 2014 -2015 time frame resul te d in more than $11.2 3 billion in new investment and the creation of nearly 185,0 0 0 jobs for the U.S. economy. The 2014 -15 period was a good one for the analysis of the EB - 5 program’s economic potential, because it reflected a time when EB5INVESTORS.COM 119