We previously covered the publication of the EB-5 Modernization Rule when it was provided to the public on July 23. Now that everyone has had a chance to read and digest its 239-page discussion of comments and rationale, we are happy to present our readers with the following summary of the major changes to the EB-5 program. Note that these changes apply to Direct and Regional Center-based petitions alike.
- Minimum investment amounts will rise substantially. When the EB-5 Modernization Rule was proposed in January 2017, undoubtedly its most shocking provision was the proposed raising of minimum investment amounts from the current $500,000 (targeted employment area “TEA”) / $1m (default) amounts to $1.3m (TEA) / $1.8m (default). Commentators for the most part attacked this proposal, arguing that it was too much, too fast. In finalizing the rule, DHS was moved somewhat in this regard. Effective with cases filed on Nov. 21, 2019 or later, the minimum TEA-based investment will be $900,000. DHS did not budge, however, on the non-TEA amount which is now pegged at $1.8 million, as was proposed. Although proportionally the difference between the two is the same, this now creates a much more severe differential of $900,000 in minimum investments, based on geography.
- Minimum investment amounts will change in the future. The new regulation reflects the only instance of raising in the EB-5 investment amounts in the program’s 29-year history. While stakeholders may disagree whether this was overdue, future minimum investment amounts will be adjusted automatically every five years from the effective date based on the Consumer Price Index for All Urban Consumers, an economic indicator that tracks the prices domestic goods and services. Thus, if consumer prices rise in the future (e.g. through inflation), then EB-5 minimums will also rise. EB-5 stakeholders can accordingly anticipate higher minimums to be effectuated in November 2024, 2029, 2034, and so on.
- It’s going to be much more difficult to obtain a “high unemployment TEA” designation. Compared to other issues, EB-5 stakeholders were much less unified on the question of what locations should qualify as a high unemployment TEA, possessing at least 150% of the national unemployment rate. Presently, USCIS defers to state designations of TEA locations which, in effect, can be just about anywhere provided that the proper state official signs off on the designation. This practice has been derided by some as “gerrymandering.” Effective Nov. 21, the methodology for obtaining a high unemployment designation will be a single census tract in which the NCE is principally doing business, and “any or all census tracts directly adjacent to such census tract(s)” by utilizing a weighted average.Notably, the regulatory text of this rule is somewhat inconsistent with the rule summary which requires the use of “any and all adjacent tracts.” USCIS might accordingly need to issue guidance in this regard.
- USCIS has ended its deference to state TEA designations, greatly complicating this process. When we submitted our comment to the draft rule, we worried that federalizing the high unemployment TEA designation process would lead to increased processing times and uncertainty, similar to how processing times for prevailing wage determinations rose after USCIS federalized the labor market testing process in the mid-2000s. In the final rule, USCIS did not establish a separate TEA designation process or enable states the ability to utilize a TEA designation letter based on the new methodology. Instead, USCIS will itself at the time of adjudication make the determination of whether an NCE is in a TEA based on the documentation submitted by investors. An assumption that a project will remain in a TEA year after year can no longer be guaranteed.
- There are some limited priority date retention provisions. Investors with approved I-526 petitions who have – because of processing times or quota backlogs – will be able to retain their priority dates if new I-526 filings are needed. Thus, in case of material change or a failed project, an investor need not go back to “end of the visa queue.” We advocated that the rule should be broader, protecting investors who may have had their petitions denied but were approvable when filed. Unfortunately, the agency will not go so far.
- The I-829 process for Derivatives is now clarified. DHS has now clarified that derivative spouses and children not included with a principal’s I-829 (either because the principal omitted the derivative or failed to file), derivatives may file their own separate petitions. One wonders the practical applicability of this clarification, however, as the derivatives may not have access to the documentation needed for I-829 approval.
- Project issuers will have the chance to modify their offering documents without worry of “material change.”The rule is effective 120 days from its publication, or Nov. 21, 2019. As part of the implementation language, project issuers are permitted to modify their documents to comply with the new rule (perhaps by changing the number of units in the offering raise) without worry that the changes are material. This accordingly will protect backlogged investors and those leveraging exemplar approvals that file in the brave new EB-5 world beginning in late November.
In sum, we are of the opinion that the regulatory changes are for the most part detrimental to the interests of prospective investors, although we appreciate that USCIS gave stakeholders four months of lead time to brace for change and did not attempt to apply provisions retroactively. We accordingly believe that most individuals would be best served by filing their EB-5 petitions as soon as possible, and certainly no later than November 20, 2019.