On Wednesday, March 8, 2017, the House Judiciary Committee held a hearing on the proposed EB-5 regulations. Investors should note the following main takeaways:
1. There was a consensus from committee members expressing approval of the USCIS-proposed regulation to increase the minimum investment amounts to $1.35 million and $1.8 million. There was also a consensus that there would be no further extension of the Regional Center program without an assurance that the proposed regulation would be finalized. Nonetheless, members still expressed the need for meaningful legislative reform.
2. A serious divide exists among members about the rules governing TEA designations as regards rural vs. urban project locations. Currently, very few projects occur in rural areas, even though rural economic development was an original priority of the program. The proposed USCIS regulations would restrict the ability of Regional Centers to combine numerous “census tracts” in order to qualify a project as a TEA; this procedure is very common for urban real estate projects that are physically located in a census tract which itself does not meet the TEA standards. Those members who support the current rules certainly dislike the TEA provisions of the proposed regulations. It is unclear if this opposition will be able to derail the implementation of the proposed regulation.
3. Notwithstanding the proposed regulations, Congress still intends to act to reform the EB-5 program. Retroactive application of Congress reforms remains a possibility, even though such congressional action raises serious legal and procedural issues for those with pending I-526 or I-829 petitions. We are actively advocating with Congressional staff that retroactivity serves no useful purpose. The best way to avoid the impact of retro-activity is to select current RC projects will qualify under the rules Congress has proposed in 2016.
4. Several comments were made regarding the current rule that permits EB-5 investors to “take credit” for all of the jobs created by a project, even if only part of the project’s capital stack contained EB-5 funds. A change to this policy would have significant implications for potential investors in Regional Center projects. It would have especially significant effects on larger projects with more investors. This potential policy change reinforces the need to do serious and independent due diligence into a project and its job creation estimates. Such indirect job estimates are already controversial, and will only receive more scrutiny going forward.