A recent Government Accountability Office report found that the EB-5 immigrant investor program, which was intended to spur development in rural and economically depressed areas, instead is being used substantially more for development projects in wealthy neighborhoods.
Of the [EB-5] applications, just 3% were for projects in rural areas, the report found. That figure is sure to further bolster claims by critics that the real estate projects are out-competing projects in poor and rural areas that are trying to get the money.
--Wall Street Journal
Senate Judiciary Committee Chairman Chuck Grassley is leading a bipartisan effort to return the program to its original intent of helping primarily rural and depressed areas. Grassley has called for the program to be fixed or ended.
Immigrant Investor Program for Poor Neighborhoods Benefits Rich Ones More, Study Shows
By Eliot Brown
The vast majority of investment in a federal immigration program meant to bring funds to rural and struggling urban areas is going to real estate developments that are typically located in economically robust neighborhoods, a study released Wednesday by the U.S. Government Accountability Office found.
The report, which looked at the EB-5 immigrant investor program over a three-month period last year, found that just 12% of investment went toward projects located in a census tract with an unemployment rate of at least 8%, even though those projects benefited from a provision earmarked for high-unemployment areas. A large chunk—36%—were for projects located in a census tract with an unemployment rate of 4% or lower.
The report is the first effort by the federal government to quantify the extent of what critics call a flagrant abuse of the program. The report hits at the heart of a fight under way in Congress over the future of EB-5, which gives green cards to foreigners who invest at least $500,000 in certain U.S. businesses that are measured to create jobs.
While it was little used for most of its history since it was created in 1990, EB-5 during the past decade has become dominated by luxury real estate projects in prosperous urban neighborhoods, including the $20 billion Hudson Yards project in Manhattan.
Developers have rushed to the program because it offers low-cost financing from the aspiring immigrants, often saving these developers tens of millions of dollars.
But nearly all of those projects have used a provision of the program meant for high-unemployment areas, which requires the project be located in an area with at least 150% of the U.S. unemployment rate, which would have meant at least 7.6% unemployment in the time period of the study.
The program allows developers and state governments to craft special districts that stitch prosperous neighborhoods with poor ones, a technique critics and administrators have called “gerrymandering.”
The report, which looked at 200 investor applications received between July and September 2015, found that 90% of the money that it looked at went toward projects that stitched together at least two census tracts—some with more than 100 tracts.
Of the applications, just 3% were for projects in rural areas, the report found. That figure is sure to further bolster claims by critics that the real estate projects are out-competing projects in poor and rural areas that are trying to get the money.
Of course, the report offers only a small snapshot. The program took in more than 14,000 investor applications in the 2015 fiscal year, so the findings have a high margin of error.
But it does offer some data in an area that had little of it at a critical time.
The EB-5 program is due to expire in December, and lawmakers have been debating this very topic. The top Democrats and Republicans on the judiciary committees in the House and the Senate have agreed on proposed overhauls to the targeted employment area issue.
But they have run into resistance from two of the Senate’s most influential members, Sens. John Cornyn (R., Texas) and Charles Schumer (D. N.Y.), who have echoed large developers’ concerns and tried to preserve the ability of luxury projects to get benefits for struggling areas.
