By Laura Reiff and Matthew Virkstis
With more than 30 years of combined experience in the politics, policy, practice, and business of immigration law, we have never witnessed a legislative process as challenging, unpredictable, and dynamic as the process that led to the most recent 10-month extension for the EB-5 Regional Center Program. We have served as both advocates for immigration reform, with leadership roles in several Washington, D.C.-based immigration reform coalitions and organizations, and as former Senate staff with responsibility for immigration policy during the last three efforts in Congress to pass comprehensive immigration reform. The process that led us to where we are today was uniquely challenging and complex, and leaves us all with an uncertain path ahead. Immigration is an unusual policy issue for sure; it has strange bedfellows—often with folks on the right and the left of the political spectrum working together who normally would not. The EB-5 debate, while a microcosm of the larger debate, became a truly challenging process, one that we have never experienced. At the outset of this article, we want to recognize the hardworking and dedicated staff members who serve the committee and leadership offices with whom we worked and who devoted so much of their time and energy to this policy issue.
Immigration Policy and Politics in the 113th and 114th Congresses
The most recent three-year reauthorization of the program in 2012 was, in hindsight, a comparatively simple and harmonious effort in Congress. The 2012 bill, a straight three-year extension for the EB-5 program and three other generally non-controversial immigration programs, passed the Senate unanimously and passed easily in the House with only a handful of “no” votes. That was then. Following 2012’s enactment, many forces converged to complicate the politics and the policy of EB-5 and in many ways inform the difficult process that resulted in the most recent 10-month EB-5 extension.
Following the 2007-2008 recession, and during a period where traditional bank lending became increasingly difficult to obtain for real estate development—in particular, construction loans—many developers, large and small, turned to EB-5 financing. A once-obscure visa program grew exponentially in popularity and profile. The successes witnessed in the program by regional center operators fed significant growth, with the number of approved regional center designations growing from a handful in 2006 to 781 as of Dec. 2, 2015. The industry expanded domestically and overseas, new businesses were established to service a growing industry, and within the last few years the program for the first time reached full subscription. Significant growth is inevitably accompanied by challenges. And during this period after 2012, EB-5 had its share.
For instance, the industry has witnessed a handful of unfortunate incidents in which regional center operators engaged in misconduct harmful to their investors and the program overall. And the Securities and Exchange Commission has become in recent years far more energized in examining EB-5-related activities. The period between 2012 and the present also saw increasingly high profile, mainstream media reporting and attention on the program, questioning the character of projects being financed with EB-5. The attention from lawmakers grew as the program’s popularity—and challenges—became increasingly visible.
Complicating immigration politics further, in 2013 another Comprehensive Immigration Reform effort was launched in a polarized U.S. Senate. In June of 2013, the Senate passed S.744, the Border Security, Economic Opportunity, and Immigration Modernization Act on a vote of 68-32. During the Senate Judiciary Committee’s consideration of the bill, Chairman Patrick Leahy filed an amendment to provide a permanent authorization and comprehensive reform of the EB-5 Regional Center Program. His amendment gained the unanimous support of the Committee. Following Senate passage of S.744, the House declined to take up and debate the Senate’s legislation.
Then, in the U.S. Senate during November of 2013, Senate Democrats voted to change the Senate rules to end the use of the filibuster against executive branch nominees and judicial nominees except for nominees to the U.S. Supreme Court. In the midst of this significant and controversial rule change to do away with the 60 vote threshold for judicial and executive nominees in the Senate, President Obama was seeking to advance the nomination of Alejandro Mayorkas, then Director of U.S. Citizenship and Immigration Services (USCIS), to be Deputy Secretary of Homeland Security—the number two job at that agency.
During Mayorkas’ confirmation process in the Senate, information concerning an investigation involving him and the EB-5 program was divulged by the then acting Inspector General for the Department of Homeland Security (DHS) to a congressional office. The revelation of the DHS Inspector General’s investigation turned the Mayorkas confirmation process into a highly contentious effort, with some contending that the process was being driven by political considerations. On Dec. 20, the Senate exercised the new filibuster rules and confirmed the Mayorkas nomination 54-41, needing only a majority to break a filibuster and confirm the nominee. The confirmation of Mayorkas, despite the existence of an Inspector General inquiry, further complicated the looming reauthorization process for the program, which at that time was scheduled to sunset on Sept. 30, 2015.
In response to the failure of comprehensive immigration reform in Congress, the Obama Administration announced in November of 2014, via executive action, a program called the Deferred Action for Parents of Americans and Lawful Permanent Residents (DAPA). This initiative followed the Administration’s earlier program called Deferred Action for Childhood Arrivals process (DACA), initiated in 2012 to benefit undocumented young people who had been brought to the United States as children. Shortly thereafter in December of 2014, in the midst of strong criticism from Republican lawmakers, Texas led 25 states in a lawsuit challenging President Obama’s actions. The Administration’s actions served to deepen mistrust among many congressional Republicans with respect to immigration policy.
In March of 2015, the DHS Inspector General’s office released its report on then-Director Mayorkas and the EB-5 Regional Center Program. The report was critical of Mayorkas’ handling of several EB-5 cases and his communications with industry stakeholders. In June of 2015, comprehensive EB-5 reform legislation to extend the program for five years was introduced in the Senate. In August of 2015, following an earlier request from lawmakers in the Senate, the Government Accountability Office (GAO) published a critical report identifying vulnerabilities and recommending reforms to the EB-5 program. Both the Inspector General’s investigation and the GAO’s report significantly increased media attention and scrutiny of the program from lawmakers.
The foregoing is a brief—and by no means exhaustive—history of recent immigration activity in the Congress and broader political world. It is illustrative in the sense that it provides some context for EB-5 reauthorization in 2015, which indeed proved to be challenging.
2015 Reauthorization of the EB-5 Regional Center Program
In 2015, the first session of the 114th Congress, six distinct EB-5 bills were introduced. In addition to S.1501 in the Senate, Representatives Jared Polis and Mark Amodei introduced H.R.616 in January; Representatives Lofgren and Gutierrez introduced H.R.3370 in July; in October, Senator Paul introduced S.2122 and Senator Flake introduced S.2115. These bills took different approaches to reauthorization of the EB-5 program, but shared the goal and reflected the general consensus that some manner of reform was needed.
Following the introduction of S.1501 in June, 2015, the EB-5 Investment Coalition (“the Coalition”) closely reviewed the legislation and prepared a comprehensive response, detailing concerns and making recommendations related to a variety of policy issues. These concerns and recommendations were made after hearing from many members of the Coalition and were both technical and substantive. The Coalition’s recommendations in part used H.R.616 as a reference point, which the Coalition had endorsed early in the 114th Congress.
During June and July, following several meetings with House and Senate Judiciary Committee staff and the exchange of ideas, the Judiciary Committee staff indicated that a revised version of S.1501 would be forthcoming for industry review and comment. This new language was expected in August, but was not ready at that time. With Sept. 30 rapidly approaching, and with no consensus on a comprehensive EB-5 reform bill, congressional leaders made the decision to extend the EB-5 program as part of the continuing resolution to fund the Federal Government through Dec. 11, 2015. The bill language was then expected in October, which came and went with no bill text.
On Nov. 7, following extensive advocacy and multiple requests from the Coalition to Congress—including to Congressional leadership—to make new legislative text available for industry review and comment, House and Senate Judiciary Committee staff provided a discussion draft.
After preliminary review of the Nov. 7, 2015 discussion draft produced by the House and Senate Judiciary Committee staff, the Coalition again produced a comprehensive response to the legislative proposal, identifying problematic areas and recommending changes. The Coalition also continued to advocate for an alternative proposal it had developed over several months to provide a data-driven approach to designation of targeted employment areas, using publicly available census tract level unemployment and commuting data. This approach was in response to a recommendation from congressional staff to develop some process for Targeted Employment Area (TEA) designation that could demonstrate that an area where a project was located could potentially serve an area of high unemployment within a broader metropolitan statistical area (MSA).
Following the release of the Nov. 7 draft, the Coalition continued a steady process of congressional meetings and stakeholder communications. After a challenging period of advocacy, during which the Coalition provided many ideas and suggestions to congressional staff with the goal of making reform legislation workable for as many industry stakeholders as possible, the Coalition made the decision to request that Congress enact the program integrity-related reforms that had broad consensus, accompanied by a short-term reauthorization, and table the ones that were proving controversial. To that end, the Coalition sent a letter to congressional leaders on Nov. 19, 22 calendar days before the EB-5 Regional Center Program’s sunset date of Dec. 11, making this request.
On Dec. 2, Judiciary Committee staff released another discussion draft. The Coalition once again analyzed the new legislative text. On Dec. 3, 2015, the Association to Invest in the U.S., an EB-5 trade association, issued a letter of endorsement of the Dec. 2 congressional draft. Following the Coalition’s analysis, many issues of concern remained, and the Coalition determined it could not join in support for the draft bill.
On Dec. 5, Coalition representatives met with other industry representatives and House and Senate Judiciary Committee staff for in-person negotiations in the Capitol. These negotiations proceeded for three days. At the end of the negotiations, the parties agreed that good progress had been made toward a workable bill in principle, and outstanding issues had been addressed. The Coalition agreed to make every effort to obtain the support of its broad membership.
After receiving much feedback from Coalition members, the Coalition could not ultimately pledge the support of its members for the negotiated draft. There was a great deal of concern conveyed by Coalition members, for example, about how projects that had been filed—and in which considerable investment had been made in the preparations—would be treated following enactment of new legislation. The agreement in principle proposed to treat any project that had not been approved by the date of enactment as subject to the various new program rules and investment amounts. In practice, such petitions filed in the lead-up to the subsequent sunset dates, under current law, would either be un-approvable or would require significant amendment or refiling to be approvable under the new law. In light of the significant investments many stakeholders made in preparing business plans, offering documents, and economic reports, and associated expenditures and expectations related to planning a project for EB-5 investment, Coalition members expressed deep reservations about the fairness of this provision.
On Dec. 8, 2015, the Coalition received a legislative draft that reflected the agreement in principle produced during three days of negotiations. As stakeholders pored over the draft agreement, many additional areas of concern were identified, both substantive and technical. Issues that remained as sticking points included allocation of visa numbers and anticipated backlogs, targeted employment area definitions, transition periods for projects to adjust to a new set of rules, and a variety of other technical, workability, and implementation issues.
In the end, it became clear that the details of a complex, complicated and difficult EB-5 immigration reform bill could not be resolved by House and Senate negotiators and congressional leadership prior to the deadline for finalization of the Consolidated Appropriations Act. An extension of the EB-5 Regional Center Program for another 10 months was ultimately passed as part of that Act.
Where do we go from here in the second session of the 114th Congress? On the heels of the most recent extension, the EB-5 Integrity Act was introduced in the Senate, which replicated the key integrity and transparency measures that were presented in S.1501, but did not include the programmatic policy issues that had proved to be controversial in the period leading up to Dec. 17. The EB-5 Integrity Act foreshadows, and helps set the stage for the debate to come in 2016. Likely, stakeholders will return to key congressional reformers and start the work again. There might be opportunities for regular order in the committees of jurisdiction, but, if what’s past is prologue, we are likely to see another highly challenging legislative process accelerate in the months and weeks leading to the end of the fiscal year on Sept. 30, 2016. It is our hope, and intent, however, that as a Coalition we move swiftly to engage with congressional leaders to develop a strong EB-5 reform package that gains the consensus needed to be enacted.
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