Written by Breanne Kincaid
Global wealth is increasing, and so too are the growing number of international elite looking to emigrate from their native country in search of their next opportunity. The U.S. EB-5 Visa Program offers a win-win solution for both wealthy foreign investors interested in living stateside, and the cash-strapped domestic development projects which are in need of alternative sources of funding. Through the EB-5 Program, foreign investors fund large-scale construction projects in exchange for two-year provisional visas for the investor and his or her family, which are then exchanged for permanent Green Cards if the program’s criteria continue to be met. Some EB-5 applicants seek permanent resident status in preparation for retirement, while others endeavor to give their children the best chance of attending a top U.S. university. What few migrants are admiring, however, is our infrastructure. Despite holding the title of the third most competitive nation worldwide, the overall quality of infrastructure in the US has slipped to a lackluster 16th place, behind most of Western Europe and Hong Kong SAR.
Since the passage of the 1990 Immigration Act, 10,000 permanent resident Green Cards have been appropriated each year for eligible immigrant investors. The EB-5 Program requirements specify a $1 million minimum investment, which is reduced to $500,000 for projects in rural areas, and areas experiencing unemployment rates 150 percent above the national average. EB-5 investments have historically excelled at financing the construction of commercial, residential, and healthcare structures – accounting for over 80 percent of the $2 billion invested through the program in fiscal year 2013. While the program has established itself as an invaluable resource, it has been incredibly underutilized as a source of funding for the maintenance and construction of transportation infrastructure.
The EB-5 program has recently seen such widespread appeal due, in part, to the relatively small investment required as compared to similar programs in other countries. The United Kingdom and Australia require the equivalent of $1.5 million and an astonishing $5.2 million, respectively, for their own permanent resident investment programs. Even with proposed minimum investment increases to $800,000 and $1.2 million for TEA and non-TEA compliant projects, investing in the US poses a significantly lesser risk.
However, it is this very idea of risk which most limits the program’s ability to play a larger role in financing public transportation infrastructure. Current legislation requires that invested capital be placed “at risk”, but neglects to define a precise degree of risk. The law’s general understanding follows that the capital must be committed without the explicit guarantee of a return.
When a cadre of EB-5 applicants were given the green light to invest in the Seattle 520 Bridge Replacement Project via purchasing Washington State bonds, it appeared as though the pain of failed attempts to upgrade national transportation infrastructure would be alleviated. Unfortunately, the project was marred with controversy when the use of general obligation bonds was retroactively denied on the grounds of not supplying enough risk. General obligation bonds are secured by state revenues, and despite the short maturation of the bonds in question being initially interpreted as risk, EB-5 regulations prohibit the guarantee of fund reimbursement. Applicants whose investments were tied in these general obligation bonds were ultimately not issued visas. However, others who invested in revenue bonds secured instead by tolls and charges on the completed bridge did, in fact, meet the program’s “at risk” requirement.
The Seattle 520 Bridge Replacement Project set a strong precedent for defining “at risk” investments involving infrastructure development. It also virtually guaranteed that all infrastructure advancements funded by EB-5 investments would impose a toll on future commuters.
Moving forward, there appear to be two ways to approach the idea of risk: eliminate it, or embrace it.
The fledgling American Job Creation and Investment Promotion Reform Act, which contains the provisions to renew the EB-5 Visa Program until 2020, currently maintains the role of risk. But we ask: what if? What if investors weren’t obligated to meet such stringent risk requirements in their EB-5 investments, but were instead required to devote the full $1.2 million in an interest-free, long-maturing state-backed bond? Due to inflation, the nature of a non-interest bearing bond would reduce the full payout value of the investment as compared to one which could earn a profit. Such a scenario should meet EB-5 standards because the investor has strengthened the backbone of American commerce without any monetary gain of his or her own.
Or, as an alternative, what if the renewed program were to wholly embrace the notion of risk by allowing interested parties to fund public transportation without the possibility of recovering any capital? Donations to the state ensure a worst-case investment scenario, where all principle is foregone. The capital functions as a gift rather than an investment, and financial security doesn’t have to be provided by any government entity. The non-monetary return of securing lawful permanent residency for oneself and one’s immediate family through an EB-5 investment certainly trumps the alternative of waiting up to 12 years for general Green Card applications to be processed and approved. As a more certain path to earning a Green Card than traditional means, but without involving the possibility recovering any capital, infrastructure-based EB-5 investments may appeal to immigrants reluctant to take on the uncertainty of committing $5 million in another country.
A clause mitigating the EB-5 risk requirement specifically in cases involving ground or water transportation infrastructure would extend investment possibilities beyond the currently accepted dealings in revenue bonds, yet still preserve the nature of the program as a job-creating vessel.
EB-5 funds have already demonstrated their value in improving public life in the regions which need it most. A single amendment to the current law would provide another avenue for these readily-available funds to do even more good. With infrastructure in America threatening widespread failure, the worst thing we can do is expect assistance to come without ushering it in ourselves.