The EB-5 program allows people from foreign countries who want to invest in U.S. businesses, and who can do so in a way that will create jobs in the United States, to receive a visa to work in the country. It is a small program: The legislation that created it can allocate no more than 10,000 visas per year, a limit that is rarely even reached.
It is has proven to be quite successful at achieving precisely what it was designed to do: stimulate investment and create jobs at zero cost to the government. But that is why its reauthorization is potentially fraught with problems. Congress is contemplating tweaking the program in an attempt to bolster program integrity and, more controversially, direct more investment to low-income regions of the country. It’s a move that’s not without risks: The pursuit of a more equitable geographic balance in job creation may result in a less effective program. Congress should be wary of making major changes to a program that’s working so well.
That EB-5 program has succeeded at its intended purpose is not in dispute: A Brookings Institution study estimated that the program has created nearly 100,000 jobs along with over $5 billion of new investment since its inception. The current EB-5 program technically consists of two different pieces: The first is the original EB-5 visa program, which Congress enacted in 1990. Its intent was to help American business compete for foreign investment with countries like Canada and Australia, which had similar investor programs in place. The program awards visas to foreigners who invest $1 million and create at least ten jobs with their investment.
In 1992, Congress augmented the original legislation by creating the Regional Center Program, and this portion is up for reauthorization this month. The creation of regional centers allowed investors to pool their investments into larger projects that they didn’t have to personally run, opening the program up to people wanting to make a sizeable investment in the country but who might not have the chops to set up a business.
Neither law specified that the EB-5 program needed to serve a specific region or type of community. The overriding intent of the program has always been about job creation, anywhere and everywhere. Senator Paul Simon, a sponsor of the original EB-5 program, took care to emphasize that its purpose was first and foremost to attract entrepreneurs and spur job creation, noting that “neither the Senate nor the House bill established any sort of criteria about the type of business investment…As long as the employment goal is met, it is unnecessary to needlessly regulate the type of business or the character of the investment.”
Congress nonetheless attempted to spur some sort of geographic balance-cum-urban development with the creation of Target Employment Areas [TEAs], which consist of areas with high unemployment rates or rural areas outside the boundary of any city or town with a population over 20,000. In a TEA, the necessary investment need only be $500,000, so long as it creates the requisite number of jobs. A significant proportion of jobs created by the EB-5 programs are in TEAs, and some critics have noted that the construction of these areas can encompass parts of communities that are neither rural nor low-income. Earlier this year, Homeland Security Secretary Jeh Johnson proposed that the reauthorized EB-5 program limit TEA’s to a “specified number of contiguous census tracts” in an attempt to preserve their focus on low-income or high-unemployment areas.
The problem with a federal top-down approach of this sort is that such a constraint could limit the efficacy of the program. Rural denizens often commute to urban areas for work and individual states, which are currently charged with delineating TEAs, usually in conjunction with regional development officials, know those commuting patterns far better than federal bureaucrats ever could and can better account for them. For instance, they would know that a construction project in an urban community may very well employ a goodly number of workers from various small towns on the periphery. A TEA designation rule that cannot comport with such a population distribution might result in some otherwise beneficial projects not getting funded.
The reauthorization of the EB-5 Regional Center Program should focus on making it more economically productive so that it generates more jobs and growth rather than attempt to redistribute the jobs it does create. For example, in addition to ensuring robust oversight and transparent processes throughout the program, Congress could exclude spouses and dependents from the visa cap to boost availability for investors or allow the cap or investment thresholds to adjust with the business cycle.
But imposing a new rule that restricts how states designate Targeted Employment Areas will only make EB-5 more of a political football than it already is. Creating a welter of restrictions about where such investment can and cannot go would likely dampen the economic impact of the program.
Like doctors, the first command of any political legislation should be to do no harm. It is an edict worth keeping in mind while we contemplate the reauthorization of the EB-5 program.
Ike Brannon is a senior fellow at the George W. Bush Institute.
