The Department of Homeland Security (DHS) on Wednesday published long-anticipated regulations governing key aspects of the EB-5 investment visa program. 

The  Department of Homeland Security (DHS) on Wednesday published   long-anticipated regulations governing key aspects of the EB-5 investment visa program.

The new rule is scheduled to take effect on November 21, 2019 – assuming Congress reauthorizes EB-5 regional centers by September 30, and does not enact substantive reforms that supersede those program elements covered by DHS's action.  For a detailed description of the rule, see "Greenberg Traurig Alert: Final EB-5 Regulations."   The regulation includes:

• Increases in Investment Amounts: 
  Investment amounts will increase to $900,000 for economic development projects in Targeted Employment Areas ("TEAs"), and to $1.8 million for non-TEA projects (from current levels of $500,000 and $1 million, respectively, which have not changed since the early 1990s).  The new amounts will adjust for inflation every five years back to 1990 dollars, with the first anticipated adjustment anticipated on October 1, 2024. 

• TEA Definitions: 
  States no longer have a role in designating TEAs – those geographies that attract EB-5 capital at the lower investment threshold.  The new rules define "High Unemployment Area" TEAs –typically in urban locations – as the census tract where the project is located, plus any "directly adjacent" tracts to the project's tract.  The weighted average unemployment rate across these tracts must be 150% of the national average unemployment rate. 
  
  
  • "Rural Areas" (with one exception) are not limited to high unemployment characteristics for TEA qualification.  As with current law, generally any area outside the boundaries of a U.S. Census Bureau Metropolitan Statistical Area ("MSA") is a "Rural TEA."  However, an entire town or city outside an MSA – with a population of 20,000 or more people – qualifies for TEA status only if that municipality has an unemployment rate 150% of the national average.
  • A number of stakeholders urged DHS to consider a "commuting pattern" approach for urban environments to qualify as a TEA.  DHS said it "appreciated" comments providing substantial evidence that workers who live in economically distressed neighborhoods typically commute to downtown job centers where core urban development is located.  In the end, however, DHS dismissed a "commuting pattern" option for TEAs because the agency found it "too operationally burdensome" and "posed challenges" that the agency could not figure out.
  • DHS also considered – and rejected – TEA delineations tied to census tract designations with a track record of success in other analogous economic development programs, like the established New Market Tax Credit ("NMTC") program.

  • DHS’s new EB-5 rule does not comprehensively reform the program as urged by rural and urban stakeholders. (EB-5 coalition letter and  Roundtable Weekly, May 17, 2019)

    Moreover, DHS failed to address the suggestion of rural and urban stakeholders to consider a recent Trump Administration Executive Order and assess the relationship between EB-5's economically distressed TEA census tracts and "Opportunity Zone" census tracts, designated by the U.S. Treasury in the spring of 2018. (Roundtable Weekly, March 8, 2019).

• Grandfathering and Transition Rules: 
  As noted above, the rule is scheduled to take effect on November 21, 2019 – assuming Congressional EB-5 reauthorization by September 30 and no legislative reforms on matters within the rule's purview.
  
  
  • Investors who have already filed I-526 petitions, or who file by November 21, are subject to current program investment levels of $500,000 or $1 million.  They will not be required to post more money to meet DHS's new amounts.  The rule states: "Petitions filed before the effective date will be adjudicated under the regulations in place at the time of filing."  
  • Projects that do not complete intended EB-5 capital raises by November 21 will subscribe investors at different amounts.  For example, a project that currently qualifies as a TEA can attract investors at $500,000 until November 21.  Thereafter, if that project loses TEA status as per the new rule, it must attract investors at the $1.8 million level.  DHS rejected the concept for "project grandfathering," stating such an approach "would grant existing projects in affluent urban areas that have been marketed as TEAs an unfair competitive advantage against new projects in such areas, which will need to attract investors at the higher minimum investment amount."       

DHS's rule does not achieve comprehensive reform of the "regional center" program – an objective that a broad coalition of rural and urban groups have urged Congress to achieve by the program's legislative sunset date on September 30, 2019.  For example, the new regulation does not address EB-5 "integrity measures" that stakeholders have long requested to deter instances of fraud and maximize national security safeguards.  (Roundtable Weekly, May 17, 2019.)