Harnessing Private Capital For Job Creation: An Analysis Of The EB-5 Program

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Harnessing Private Capital For Job Creation: An Analysis Of The EB-5 Program
U.S. Policy Metrics
                                                                        www.uspolicymetrics.com
                                                                                    202-652-0037

                                                                     Hamilton Place Strategies
                                                               www.hamiltonplacestrategies.com
                                                                                  202-822-1205
                                                                                          June 2015

Harnessing Private Capital For Job Creation:
An Analysis Of The EB-5 Program
Steve McMillin, USPM
Michael Solon, USPM
Matt McDonald, HPS
                                     T   he EB-5 Immigrant Inves-
                                         tor program was created
                                     in the Immigration Act of
                                                                      central role in the program’s
                                                                      implementation, facilitating
                                                                      a majority of the total visas
                                     1990 to provide an alloca-       issued over the history of
This report was commissioned by      tion of visas for immigrants     the EB-5 program.
the EB-5 Investment Coalition. The   investing in a job-creating
findings represent the views of                                       Prior to 2009, the EB-5 pro-
                                     commercial enterprise. The
the authors alone.                                                    gram used only a small
                                     program was modified in          fraction of the 10,000 visas
Findings:                            1992 through the creation        allocated annually to the
                                     of the Regional Center
•   From 2005-2013, the                                               program. In recent years,
                                     Program, which allows im-
    EB-5 program generated                                            however, rising demand for
    a minimum of $5.2 billion        migrant investors to pool        foreign investment on the
    in private investment. In        capital in larger projects and   part of U.S. businesses paired
    2013 alone, the program          to meet the job creation
    brought in a minimum                                              with growing demand for
                                     requirements of the program
    of $1.6 billion in private                                        EB-5 visas has increased
                                     through W-2 employees,
    investment.                                                       program utilization dramat-
                                     independent contractors, or      ically. Chinese applicants
•   Assuming all minimum             other indirect means.            have managed to reach their
    requirements are met for
    each investment, invest-                                          per-country limit and peti-
                                     The Regional Center pro-
    ments through the EB-5                                            tions from all other countries
                                     gram was created as a pi-
    program in 2013 would                                             continue to rise.
    create 31,000 jobs. Other        lot program and has been
    analyses relying on In-          extended six times, most         This increased utilization has
    put-Output (I-O) models          recently in 2012, when it        been accompanied by pro-
    find even more jobs will         was reauthorized by unan-        gram changes and manage-
    be created with this level       imous consent in the U.S.        ment issues that have drawn
    of investment.                                                    the attention of the Depart-
                                     Senate and a margin of 412
•   Analyses using I-O mod-          to 3 in the U.S. House of        ment of Homeland Secu-
    els of snapshots of EB-5         Representatives. Regional        rity Inspector General, the
    investments show that            Center Program authority         Government Accountabili-
    investments throughout           will expire on September 30,     ty Office, and the relevant
    the U.S. fund projects in                                         oversight committees of
    a diverse range of indus-        2015 unless Congress acts to
    tries and create tens of         extend it once again. Re-        Congress. These reviews will
    thousands of jobs.               gional centers have played a     no doubt provide Congress
with a number of options for     portunity to become lawful         percent.2
improving efficiency, trans-     permanent residents.            Alternatively, the EB-5 pro-
parency, and accountability      The current structure of the    gram allows immigrants to
in the context of reautho-       program allows immigrants       invest $500,000 in a “target-
rizing the Regional Center       who invest capital in job-cre- ed employment area” (TEA),
authority.                       ating businesses and proj-      which includes a rural area or
This paper seeks to address      ects in the United States to    a high unemployment area.
the threshold question be-       receive conditional perma-      Rural designation adheres to
fore Congress, the contin-       nent resident status for two    the Office of Management
uation of Regional Center        years through the United        and Budget definition of
authority and, by extension,     States Citizenship and Im-      regions outside of any city
the continuation of a robust     migration Services’ (USCIS)     or town with a population
EB-5 program, based on the       “immigrant petition by alien    of 20,000 or more. Further-
program’s record, design,        entrepreneur” (I-526). If the   more, the program classifies
and job-creating potential.      investor has satisfied the      TEAs as areas with unem-
                                 requirements                                    ployment of
The rest of this paper will:                     ...the  EB-5  program    was
                                 of the EB-5                                     at least 150
•   Provide background on        Program, the introduced as a means percent of the
    the EB-5 program             conditions      for stimulating econom- national aver-
•   Detail the economic im-      of residency    ic activity and promot- age rate.3
    pact of the program          are removed ing job growth through Regardless
                                 through a       the infusion of private of whether
•   Demonstrate that the         “removal of     capital...                      an immi-
    EB-5 program is a suc-       conditions” (I-
    cessful investment policy                                                    grant invests
                                 829) allowing
    and, secondarily, an im-                                     $1,000,000 or $500,000, each
                                 them and their dependents
    migration policy                                             participant must prove that
                                 to become lawful perma-         their qualifying investment
•   Highlight the efficiency     nent residents of the United    is personally owned, legally
    of the program’s private     States without further condi- obtained, and understood
    capital investment           tions.                          to carry both a risk of loss or
•   Discuss potential reforms    Investment Requirements -          chance for gain.
    to increase the program’s    10 U.S. Worker Jobs Through        In addition to the preceding
    economic impact              Assumed Risk Greater than          capital qualifications, the
                                 $500K.
Program Background.                                                 EB-5 program adheres to its
                                 Immigrants participating           purpose of stimulating eco-
The EB-5 Immigrant Inves-
                                 in the EB-5 program are            nomic activity and promot-
tor program was initially
                                 required to make a mini-           ing job growth by requiring
created by Congress as part
                                 mum capital investment of          that investments create a
of the Immigration Act of
                                 $1,000,000 dollars in new          minimum of 10 full-time jobs
1990. Along with four alter-
                                 U.S. enterprises.1 If a partici-   for U.S. workers. Immigrants
native employment-based
                                 pant chooses to invest in an       may also satisfy this require-
(EB) visas, the EB-5 program
                                 existing business—a com-           ment if their qualifying in-
was introduced as a means
                                 mercial enterprise estab-          vestment saves a minimum
for stimulating economic
                                 lished before November 29,         of 10 jobs in a “troubled busi-
activity and promoting job
                                 1990—the capital investment        ness”.4 A troubled business
growth through the infusion
                                 must increase the business’s       is classified as an enterprise
of private capital, while also
                                 net worth or the number of         that has operated for at least
offering 10,000 eligible peo-
                                 qualifying U.S. workers em-        two years and incurred a
ple each fiscal year an op-
                                 ployed in the business by 40       net loss of 20 percent (deter-
                                                                                                 2
mined on the basis of gen-       applicants have to complete tional sources of financing
eral accounting principles)      the USCIS “application for        became scarce during the
during one of the two years      regional center” (I-924) and      start of the 2008 recession,
preceding the investment.        undergo a thorough vetting        alternative means of accru-
                                 process. Regional centers         ing capital such as the EB-5
Regional Centers Have
                                 qualify based on a variety of program and creating re-
Helped Propel The EB-5 Pro-
                                 factors such                                       gional centers
gram Forward.
                                 as their pro-                                      were viewed
As an alternative to the         posed geo-
                                                    Regional   centers   have       as practical
original program, immigrants     graphic scope,
                                                    been critical in financ-        means for
have the option of initiat-      their ability      ing a wide   array  of  local   funding devel-
ing a qualifying investment      to improve         ventures for a diversity opment proj-
through the EB-5 Regional        regional pro- of communities across                ects.
Center Program. A region-        ductivity and      the country.
                                                                                    Examples of
al center essentially pools      economic                                           projects fi-
EB-5 investments with other      growth, and a comprehen-          nanced in whole or in part
domestic sources to finance      sive economic plan that           through this method include
commercial projects. There-      demonstrates how the cen-         the Hunters Point Naval
fore, rather than seeking out    ter will create both indirect     Shipyard in San Francisco;
an individual opportunity,       and direct jobs. Upon ap-         the Panorama Tower in Mi-
investors can go to regional     proval, these centers can         ami; and Marriott hotels in
centers that can direct funds    then begin accepting immi-        Seattle and Los Angeles.
to projects.                     grant investment and pool-
                                 ing the capital to facilitate     In addition to these large-
Investors utilizing region-
                                 large development projects        scale commercial projects,
al centers are subjected to
                                 that create more jobs.            regional centers have been
the same obligations con-
                                                                   critical in financing a wide
cerning both level and area      While regional centers have       array of local ventures for
of investment, but operate       been in place since 1993, the a diversity of communities
under different job creation     program only recently expe- across the country. EB-5
requirements. Rather than        rienced a rapid growth spurt regional center investments
creating or preserving 10        beginning in 2008. Accord-        helped build hundreds of
direct jobs, USCIS allows        ing to an analysis conducted affordable housing units in
regional center investors        by the Brookings Institution, Miami. They allowed manu-
to create 10 indirect jobs as    only 16 regional centers were facturer Proterra to relocate
a means for incentivizing        created from the program’s        and expand operations for
increased investment. US-        inception up until 2007.6 As their zero-emission battery
CIS currently defines indirect   of the end of 2013, the num-      powered busses to South
jobs as those that are “creat-   ber of regional centers was       Carolina. And in Chicago, Illi-
ed collaterally or as a result   nearly 25 times larger with       nois, regional center invest-
of capital invested in a com-    over 400 centers in 44 states, ment is aiding the construc-
mercial enterprise affiliated    the District of Columbia, and tion of treatment centers for
with a regional center by an     U.S. territories. Today, there    patients with Alzheimer’s or
EB-5 investor.”5 Additional-     are now over 600 centers          long-term mental illness.
ly, only economic models         (Fig. 1).
approved by USCIS can be                                           EB-5 money is often de-
                                 The 2008 spike and subse-
used to estimate indirect job                                      scribed as “patient capital.”
                                 quent growth in the num-
gains.                                                             During the crisis and the
                                 ber of regional centers can       weak recovery, EB-5 financ-
In order to create a new         partially be attributed to        ing was available and of-
regional center, interested      the financial crisis. As tradi-   fered at lower rates, allowing
                                                                                                 3
The national unemployment
Fig. 1: Number Of Authorized EB-5 Regional Centers
                                                                    rate has nearly reached
                                                                    pre-recession levels. Yet, this
                                        652                         ignores the fact that there
                                                                    are many “missing” workers
                                                                    who have stopped looking
                                                                    for work due to the weak-
                                                                    ness of the economy. The la-
                                                                    bor force participation rate is
                                                                    currently 62.8 percent, down
                                                   +3,975%          roughly three percentage
                                                                    points since the crisis. Some
                                                                    of this drop is undoubtedly
                                                                    due to the aging of our pop-
                                                                    ulation, yet most estimates
                                                                    find that a good portion is
                   16                                               also explained by the weak
                                                                    recovery.10
                 2007                  2015                           Additionally, approximate-
Source: United States Citizenship And Immigration Services (May 2015) ly 2.3 million workers are
                                                                      employed part-time for
                                                                      solely economic reasons,
capital-intensive projects          Targeting High Unemploy-          roughly one million more
such as hotels that directly        ment Areas.                       than pre-crisis figures. Last-
and indirectly employ thou-                                           ly, there are twice as many
                                    Beyond providing “patient
sands of people to get off                                            counties in 2015 with greater
                                    capital,” the EB-5 program
the ground. In the first three                                        than or equal to 6 percent
                                    offers investors the abili-
years after the crisis, Hilton,                                       unemployment than in
                                    ty to commit $500,000 in
Hyatt, and Starwood Hotels                                            2007. This also holds true for
                                    investments
all turned to EB-5 financing,                                                         counties with
                                    as opposed
according to a New York                              In the first three years greater than
                                    to $1,000,000
Times report.7                                       after the crisis, Hilton, or equal to 8
                                    by targeting
“It’s a method of financing         a high un-
                                                     Hyatt, and Starwood              percent un-
that’s current, available and       employment       Hotels all turned to             employment.11
very credible,” said Craig        area. Despite     EB-5 financing.             Overall, the
Mance, Hilton’s senior vice       an economic                                   EB-5 program
president for development         recovery that is technically   incentivizes investment in
for North America. “It’s help-    beyond its sixth year, it is   these regions that include
ing deals move forward.”          evident that groups and ar-    pockets of high unemploy-
Overall, the regional center      eas of the nation have been ment through TEAs.
program has become the            left behind. Unemployment
                                                                 Program Participation Is On
vastly preferred means of         at the county level shows
                                                                 The Rise.
investment for immigrants         immense variation in 2015,
                                  swinging nearly 25 percent-    Demand for the EB-5 visa
participating in the EB-5 pro-
                                  age points between 1.6 and     has grown exponentially
gram. Ninety-eight percent
                                  26.6 percent among the         over the past few years,
of EB-5 visas in 2013 were
                                  most employed and most         leading to an increase in the
allocated based off invest-
ments through regional            unemployed counties in the number of immigrants in-
                                  country (Fig 2).9              vesting in and entering the
centers.8
                                                                                                   4
Fig. 2: Unemployment By County March 2015

                                                                     Percent Unemployment
                                                                          3.70 and below
                                                                          3.70 to 5.00
                                                                          5.00 to 6.10
                                                                          6.10 to 7.30
                                                                          7.30 to 8.80
                                                                          8.80 to 11.10
                                                                          11.10 to 16.00
 Source: F.R.E.D.                                                         16.00 and above

United States through the        mainland Chinese investors      cause investors’ family
program. While 749 individu-     to immigrate to the United      members, including spouses
als gained conditional resi-     States and manage their         and children, are included in
dency through the EB-5 pro-      investments.                    the cap, 10,000 investors will
gram in 2005, that number                                        never enter the U.S. through
                                 These delays will do more
quickly rose to 1,360 in 2008                                    the EB-5 program. From
                                 than simply inconvenience
and has continued to expand                                                       2005-2013, 24
                                 these pro-
to 8,543 visas granted in 2013                    ...over the last two years, percent of all
                                 spective
(Fig. 3).                                                                         conditional
                                 immigrants. the EB-5 visa program
                                                                                  residency
In fact, over the last two       They also        has nearly reached its
                                                                                  visas were
years, the EB-5 visa program     threaten the cap of 10,000 visas.
                                                                                  given to the
has nearly reached its cap of    ability of the
                                                                                  investors’
10,000 visas. As total de-       program to
                                                                 spouses   and  40 percent were
mand has steadily increased,     attract viable investments.
                                                                 given to their children. In
per-country limits have been     Not only will Chinese-born
                                                                 total, only 35 percent of the
implemented to ensure that       investors be deterred from
                                                                 visas were allocated to the
the program remains with-        participating due to these
                                                                 investors themselves (Fig. 4).
in its quota. On May 1, 2015,    suspensions, as the largest
Chinese applicants reached       category of investors in the     The Bottom Line: The EB-5
their EB-5 quota, leading the    program, a limit on their ap-    Program Creates Tens Of
State Department and USCIS       plications will make it more     Thousands Of Jobs.
to implement retrogression       difficult for regional centers   The early years of the EB-5
on future investors from the     to finance larger projects by    program yielded minimal
country. Quota retrogression     pooling the funds of inves-      investment and job creation
will significantly delay I-526   tors from multiple countries.    due to low participation. But
application processing and       It’s worth noting that be-       since a surge in popularity
increase the time it takes for
                                                                                              5
wards TEA investment and
Fig. 3: Total EB-5 Visas Issued 2005-2013
                                                                          its lower cost.12
                                                                8,543     Assuming applicants only
                                                                          invested at the minimum
                                                                          required rate ($1,000,000 for
                                                        6,628             non-TEA and $500,000 for
                                                                          TEA), the program triggered
                                                                          a minimum of $1.5 billion
                                                                          invested in TEAs and $88 mil-
                                                                          lion in non-TEAs in 2013 (Fig.
                                3,668                                     5). With this level of invest-
                                                3,340
                                                                          ment, the EB-5 program can
                                        2,408                             claim responsibility for cre-
                                                                          ating potentially 31,000 U.S.
                        1,360
                  806                                                     jobs in 2013, based on the re-
            749
     346                                                                  quirement that each investor
                                                                          has fulfilled the minimum of
                                                                          10 net new jobs created.13
    2005 2006 2007 2008 2009 2010 2011 2012 2013
                                                                          To put that in perspective, in
Source: D.H.S. Immigration Yearbook 2005-2013                             the past 12-months, 11 states,
                                                                          including Alabama, Arkansas,
                                                                          Connecticut, Delaware, Idaho,
in 2008, the EB-5 program          investment in TEAs made
                                                                          Iowa, Kansas, Nebraska, New
has shown consistent – and         up 98 percent of the total –
                                                                          Mexico, North Dakota, and
growing – annual yields of         a testament to the growth
                                                                          South Dakota, saw less job
domestic investment and            of regional centers and the
                                                                          growth.14
U.S. job creation.                 preference of investors to-
The majority of the growth
in the EB-5 program has            Fig. 4: Total EB-5 Visa Breakdown 2005-2013
been through the region-             100%
al center program, which
                                        90%
simplifies the investment
process for applicants and              80%
contains job creation re-               70%
quirements that can be easi-
                                        60%
er to fulfill. The vast majority
of program participants who             50%
invest through regional cen-            40%
ters do so in targeted em-
                                        30%
ployment areas (TEAs), there-
by investing at the lower               20%
cost of $500,000 rather than            10%
$1,000,000.
                                        0%
In 2005, before the program
                                                2005 2006 2007 2008 2009 2010 2011 2012 2013
gained in popularity, invest-
ment in TEAs made up 58                           Spouses          Investor, Not in TEA
percent of the total visas                        Children         Investor, TEA
allocated towards employ-
                                   Source: D.H.S. Immigration Yearbook 2005-2013
ment creation. But in 2013,
                                                                                                      6
Given a typical investment         tivity at no programmatic         Highway Administration to
of $500,000 and a minimum          cost, the EB-5 program can        estimate the number of jobs
requirement of 10 jobs, the        only reduce the deficit, while    created by federal highway
EB-5 program uses roughly          the stimulus added to the         investments, use Input-Out-
$50,000 in private capital per     deficit and in turn will hinder   put models to estimate jobs
job. Meanwhile, estimates          growth in the long run.16         of the EB-5 program and find
for the American Recov-                                              larger job gains.
                                   Snapshot
ery and Reinvestment Act,          Analyses Of     The EB-5 program is all           A recent
commonly known as the              Economic        private capital and the           peer-reviewed
stimulus, ranged from more         Impact Across   program itself is funded          analysis by
than $100,000 per job to           The Country.    through user fees, not            the Alward
$400,000. Under this scenar-                                                         Institute for
io, the EB-5 visa program is       The analysis    taxes.
                                                                                     Collabora-
500 percent more efficient at      above relies
                                                                                     tive Science
creating a job (Fig. 6).15         on conser-
                                                                     looked at the impact of to-
                                   vative assumptions. While
Moreover, the stimulus was                                           tal EB-5 spending including
                                   it ignores the effects of
public money, provided by                                            associated household spend-
                                   pooling EB-5 investments
the taxpayer or added to                                             ing and additional immigra-
                                   through regional centers, it
the public debt. The EB-5                                            tion expenses. David Kay—a
                                   only assumes 10 jobs are cre-
program is all private capi-                                         regional economist who
                                   ated when in fact many EB-5
tal and the program itself is                                        specializes in development
                                   investments can create far
funded through user fees,                                            strategy, policy analysis, and
                                   more. Other analyses, similar
not taxes. Therefore, because                                        program evaluation—found
                                   to those used by the Federal
it generates economic ac-                                            that over the course of FY
                                                                     2013 the EB-5 program sup-
                                                                     ported more than 41,000
Fig. 5: Minimum Total Annual EB-5 Investment 2005-2013               jobs.17 The full impact of the
                                                                     EB-5 visa program becomes
  $1.6B                                                              apparent when considering
                                                                     the impact on local job cre-
  $1.4B                                                              ation.
                                                                     MB Consulting, LLC conduct-
  $1.2B                                                              ed an analysis on EB-5 eco-
                                                                     nomic impact that examined
  $1.0B                                                              a selection of projects in
                                                                     numerous industries com-
 $0.8B
                                                                     pleted by a variety of region-
                                                                     al centers. The study found
 $0.6B
                                                                     that 83 regional center proj-
                                                                     ects from across the Unit-
 $0.4B
                                                                     ed States and the Mariana
 $0.2B                                                               Islands were able to produce
                                                                     $15 billion in investment and
 $0.0B                                                               create 103,685 jobs from 2011
                                                                     to 2014. While high levels of
          2005 2006 2007 2008 2009 2010 2011 2012 2013               investment and job creation
                                                                     were concentrated in states
Source: D.H.S. Immigration Yearbook 2005-2013                        with large populations,
**Includes TEA & Non-TEA Investments                                 states such as North Carolina

                                                                                                  7
the EB-5 program’s impact
Fig. 6: EB-5 And ARRA Cost-Per-Job Comparison
                                                                    across the entire United
                                                                    States; it provides a nuanced
             $300,000                                               picture of the program’s ex-
                                                                    tensive effects in metropol-
                                                                    itan areas as well. MB Con-
                                                                    sulting’s analysis identified
                                                                    that EB-5 investments in ma-
                                                                    jor urban areas such as New
                                                       +500%        York City were able to create
                                                                    and support over 57,000 jobs
                                                                    in a variety of industries. In
                                                                    Los Angeles, Wright Johnson
                                         $50,000                    estimated that the program
                                                                    generated nearly 10,300 jobs
                                                                    for constructing apartments,
                                                                    hotels, and mixed use build-
       American Recovery              EB-5 Program                  ings.
      and Reinvestment Act                                           Urban areas throughout the
                                                                     United States continue to
                                                                     deal with challenges such as
Source: James Feyrer And Bruce Sacerdote, National Bureau of
Economic Research
                                                                     shortages of quality hous-
                                                                     ing or fluctuating levels of
                                                                     poverty and must also find
were still able to generate        resorts were the most suc-        ways to capitalize on oppor-
$160.4 million in investment       cessful in terms of job cre-      tunities for growth. The EB-5
and 2,741 jobs with projects       ation, generating a five-year program creates investment
focused on cold storage,           total of 49,980 jobs. Other       that can, in many ways, work
continuous care, and hotel         industries such as assisted       towards solving the prob-
construction. The EB-5 pro-        living facil-                                      lems that
gram impacts states across         ities exhib-      83 regional center proj-         urban areas
the country (see Table 2).         ited steady       ects  from  across  the          currently
An additional analysis con-        growth    over    United   States  and  the        face. In addi-
ducted by Wright Johnson,          the same          Mariana Islands were able tion to pro-
                                   time period, to produce $15 billion in             viding capital
LLC looked at a variety of
                                   generating    a   investment and create            for develop-
EB-5 regional center projects
                                   total of $89.5 103,685 jobs.                       ment, EB-5
across the United States
                                   million  in                                        investment is
from 2011 to 2015. The anal-
                                   EB-5 invest-                                       also respon-
ysis found that the selected
regional centers from Wash- ment and creating an esti-               sible for providing a wide
                                   mated   2,850   jobs. The Wright  array of jobs in these com-
ington to Puerto Rico were
                                   Johnson, LLC data show            munities. Each commercial
able to generate $2.5 billion
                                   that  the  EB-5  program  helps   development enables job
in investment and create an
                                   businesses across a variety       creation directly centered on
estimated 67,364 jobs.
                                   of sectors, from real estate,     construction or maintaining
As data from Wright John-          healthcare, manufacturing,        the valuable supply chains
son, LLC (see Table 1) show,       and tourism.                      that enable development.
mixed use projects and proj-                                         Furthermore, the benefits of
ects focused on apartments, Data from the above analy-
                                   ses does not simply illustrate such employment permeate
hotels, manufacturing, and
                                                                                                   8
outside of the immediate           rect job creation.              highway spending using a
scope of the EB-5 program                                          similar model that takes into
                                   Lastly, these new employees
by generating an additional                                        accout direct, indirect, and
                                   now have more income that
set of jobs in response to the                                     induced job creation.20
                                   they can spend at restau-
overall rising levels of in-       rants, housing, furniture,      There are benefits to poli-
come catalyzed by direct job       cars, and more, referred to     cymakers in understanding
creation.                          as induced job creation. The    both direct and indirect job
Direct, Indirect, And Induced      sum impact is the increase      creation, and weighing each
Jobs.                              in final demand, and while it   appropriately in making pub-
                                   may seem complex to mea-        lic policy. But by no means
One critique of the EB-5 pro-
                                   sure, economists have been      should one ignore the val-
gram is that it allows for the
                                   developing and fine-tuning      ue of indirect job creation,
inclusion of indirect jobs cre-
                                   models over the past 70 plus    nor would it be prudent to
ated towards the minimum
                                   years to tackle these types     ignore the decades econo-
10 jobs created requirement.
                                   of questions.                   mists have spent developing
While direct job counts may
                                                                   and refining the models to
have the benefit of great-         Wassily W. Leontief devel-
                                                                   estimate it.
er certainty, such a narrow        oped the first I-O model at
view of economic impact            the national level in 1941,     This argument parallels the
will inevitably undercount         followed by Walter Isard who debate over dynamic scoring
the impact of investments.         created regional models in      for budgetary policy. Static
Just as indirect and induced       the 1950’s. Today, I-O mod- analyses fail to account for
                                               19

jobs metrics are used for          els such as IMPLAN and RIMS the full benefits of policies
multifaceted projects such         II are used by a wide-variety such as corporate tax reform
as the Keystone XL pipeline,       of economic actors such as      and deny policymakers rele-
they apply with equal force        city planners, investors, and   vant information. Discount-
in the context of the EB-5         elected officials. Economic     ing the dynamic effects of
program.18                         analyses continuously rely      the EB-5 program by restrict-
                                   on these tools as the several ing job counts to just direct
The impact of an investment
                                   sectors of developed econo- jobs will have a similar effect
that builds a hotel does not
                                   mies become                                     on invest-
end at the hotel’s doors.
                                   highly inter- While direct job counts           ments.
Economists break down the
                                   dependent.       may have the benefit of Additionally,
impact into direct, indirect,
                                   Simply put,
and induced job creation. In                        greater certainty, such a from a practi-
                                   these are
the case of a hypothetical                          narrow view of econom- cal standpoint
                                   widely ac-
hotel construction project,                         ic impact will inevitably with respect
                                   cepted mod-
the hotel directly employs                          undercount the impact          to the EB-5
                                   els that are
construction workers and                            of investments.                program,
                                   widely used
then hotel managers and                                                            eliminating
                                   by federal
staff. Indirectly, the construc-                                                   the consid-
                                   statistical agencies, includ-
tion of the hotel uses con-                                        eration of indirect and in-
                                   ing the Department of Com- duced jobs would severely
crete, bricks, and wood, lead-
                                   merce’s Bureau of Economic undermine the effectiveness
ing to more production and
                                   Analysis and the Department of the program. For one, it
mining of those materials
                                   of Labor’s Bureau of Labor
and thus more jobs. Mean-                                          would reduce participation
                                   Statistics.
while, food, cleaning, and                                         as many projects would no
electrical businesses now          In fact, the Department of      longer qualify for these in-
have a new customer, creat-        Transportation and Feder-       vestments. Second, it would
ing more demand for labor.         al Highway Administration       favor investment in labor-in-
This process represents indi-      calculates the jobs impact of   tensive sectors over other
                                                                                               9
Fig. 7: Visa Allocation By Category Of Admission 2013                the United States. The EB-5
                                                                     visa accounts for less than
                                                                     one percent of that total
          990,553
                                                                     (Fig. 7).21 The vast majority
                                                                     of immigrant programs are
                                                                     designed to connect fam-
                                                                     ilies and protect refugees
                                                                     and asylees, with only 15
                                                                     percent of all visas related
                                                                     to employment. Even with-
                                                                     in the category of employ-
                                                                     ment-based visas, the EB-5
                                                                     program makes up only 5.3
                                                                     percent and is the only pro-
                                 161,110                             gram specifically mandated
                                                                     to create U.S. jobs. From
                                                   8,543             the perspective of U.S. im-
                                                                     migration policy, the EB-5
            Total           Employment-          EB-5 Visas          program admits a relatively
                             Based Visa                              small number of immigrants,
                                                                     all of whom have sufficient
Source: D.H.S. Office Of Immigrant Statistics
                                                                     financial means and are thus
                                                                     unlikely to enroll in various
                                                                     low-income public benefit
                                                                     programs.
higher-productivity sectors.          goals across the legislative
Government policy should              and political spectrum, be-  The real value of the pro-
not favor one sector over             cause it catalyzes growth at gram, however, is not the
another. Therefore, including         no cost to the taxpayer.     number of people that come
indirect jobs in the count is                                      to the United States, but
                                      The following framework is   how their investments lever-
beneficial in that it levels the      the proper way to assess the age job creation. EB-5 visas
playing field for investment          EB-5 Immi-                                   generate a
from EB-5 participants.               grant Investor                               minimum
                                                      The real value of the
The EB-5 Program As Pri-              program: a
                                                      program, however, is not investment
vate investment, Not Immi-            visa class that                              of $1,000,000,
gration Policy.                       requires either
                                                      the number of people
                                                                                   or $500,000
                                      $1,000,000 or who come to the Unit-
Any analysis of the EB-5
                                      $500,000 in     ed States, but how their in a targeted
program must be considered
                                      investment      investments leverage job employment
in the context of the pub-                                                         area, that cre-
                                      and at least    creation.
lic policy landscape in 2015.                                                      ates at least
                                      10 U.S. worker                               10 jobs. As
The national debate over tax
                                      jobs created                 detailed above, in 2013, these
reform, trade expansion, and
                                      to obtain lawful permanent   investments totaled $1.6
infrastructure policy have
                                      residency, often referred to billion. However, this level of
one thing in common: a de-
                                      as a green card.             investment understates its
sire to boost private invest-
ment to help fuel long-term           Every year approximately     importance.
growth.                               one million new legal immi-  EB-5 investment is “patient
                                      grants (Lawful Permanent     capital” which persists even
Encouraging more private in-
                                      Residents) are admitted to   during times of stress and
vestment is central to policy
                                                                                                10
demands lower rates of re-             program is a rounding error      challenge efforts to increase
turn than other alternatives.          as it relates to overall immi-   savings and capital forma-
It’s therefore very promising          gration levels                                 tion (Fig. 8). As
for durability and long lead           but is dispro-                                 the U.S. popula-
                                                          Looking more long-
capital-intensive investment           portionately                                   tion ages, more
that tend to have a larger             large relative
                                                          term,   the demograph-      of the popula-
employment footprint than              to its effect on
                                                          ic changes the Unit-        tion will shift
other investment alterna-              private domes-     ed  States  faces  will     from accumu-
tives. Furthermore, while              tic investment     challenge   efforts  to     lating savings
investment generated by the            and net new        increase savings and to consuming
EB-5 program represents a              job creation.      capital formation.          them. A 2005
fraction of total U.S. foreign                                                        McKinsey study
                                       In the two
direct investment, it remains                                                         summarizes
                                       years after our most recent
a source of capital that can                                            this challenge best:
                                       economic crisis, investment
have a significant role on the         spending fell 34 percent.22      “In the past, aging of the
regional and local level.              Since then, gross domestic       baby boomers supported
While it is typically consid-          private investment has in-       wealth accumulation as they
ered in the context of im-             creased back to pre-crisis       moved through their peak
migration policy, the EB-5             highs, but as a percentage       income and saving years,
program is far too small and           of GDP, it remains below the     but was overwhelmed by
has a different set of goals           bottom of 2000-01 recession      strong behavioral trends
relative to other programs             levels at 16.7 percent.23        to save less. In the next 20
to be solely considered                                                 years, however, the baby
                                       Looking more long-term,
immigration policy. By any                                              boomers will enter retire-
                                       the demographic changes
conceivable metric, the EB-5                                            ment and will reinforce
                                       the United States faces will

Fig. 8: Aging Population As A Percentage Of The United States Population 1900-2050

                                                             Age 60+       Age 65+        Age 85+
 30%

  25%

 20%

  15%

  10%

   5%

   0%
     1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Source: U.S. Administration On Aging

                                                                                                     11
these behavioral trends to        that may favor rural invest-      program and not an immi-
create a significant financial    ment over urban investment,       gration program, a reform
‘headwind:’ baby boomers          proposed reforms will only        that excludes spouses and
will save less, younger gen-      inhibit the ability of the        dependents from the cap
erations will continue to         program to create jobs. As        better aligns the cap with
save less, and birth rates will   stated above, the job re-         the goals of the program.27
slow. The resulting decline in    quirement’s methodology is        This would increase the cap,
the growth rate of financial      already economically sound.       but given the existing low
wealth accumulation means         Further, urban investments        number of visas within the
there will be less house-         like the Barclay’s center in      program, the EB-5 visa would
hold savings to support a         New York are valuable to          still be small relative to oth-
fast-growing retiree popula-      local economies. There is no      er visa categories in terms
tion and it will become more      economic reason to favor          of number of immigrants.
difficult to support domes-       rural over urban investment.      However, it would leverage
tic investment and sustain        As a general rule, the U.S.       investment and job growth
strong economic growth.”24        government should ensure          significantly.
                                  capital flows as efficiently as
Moody’s echoed these con-                                           Second, cyclical adjustments
                                  possible, going to where it’s
cerns last March arguing                                            should be considered under
                                  economically needed.
that aging will reduce an-                                          potential reforms. As stat-
nual economic growth by           Although some of the re-          ed above, investment fell
0.4 percentage points and         forms proposed in the Sen-        34 percent during the most
0.9 percentage points from        ate threaten to inhibit the       recent crisis. Adjusting the
2014-2019 and 2020-2025,          effectiveness of the EB-5         EB-5 cap for cyclicality would
respectively.25                   program, there are options        improve the effectiveness
                                  that could improve the abil-      of the program. Specifically,
The United States needs
                                  ity of the EB-5 program to        two approaches should be
policies that will increase
                                  boost the U.S. economy. Two       considered during recession
investment to sustain eco-
                                  reforms that could enhance        years: reducing the mini-
nomic growth through short-
                                  the program’s investment          mum investment threshold
term crises and in long-term
                                  and jobs impact are the           and/or raising the cap.
challenges. At no cost to the
                                  treatment of dependents
taxpayer,26 the EB-5 program                                      In conclusion, government
                                  and cyclical adjustments.
is an efficient means of at-                                      policy proposals from tax
tracting private investment       The EB-5 program has con-       reform to trade to infra-
proven to generate U.S. job       sistently approached its cap    structure all seek to boost
growth.                           of 10,000 visas since partic-   U.S. investment, because it
                                  ipation experienced a rapid     is critical to capital-forma-
Reform: Opportunities To
                                  growth spurt in 2008. This      tion and long-run economic
Enhance Economic Impact.
                                  increase in de-                                  growth. Going
A recent proposal by leading      mand is largely                                  forward, an
Senators to reauthorize the       due to the fact ...reform that excludes          aging pop-
EB-5 Regional Center pro-         that a sub-      spouses    and  depen-          ulation will
gram for five years is a wel-     stantial share dents from the cap bet- likely reduce
come development. Howev-          of these visas ter aligns the visa quota private invest-
er, some proposed program         is allocated to with the goals of the            ment in the
changes could result in a         the spouses      program.                        U.S. There-
reduced impact of the pro-        and children of                                  fore, we need
gram on the U.S. economy.         investors. Be-                                   smart gov-
By creating more restrictive      cause EB-5 is more properly     ernment policies to sustain
job requirements and rules        thought of as an investment growth. Extension and im-

                                                                                                 12
provement of the EB-5 pro-     About The Authors
gram will further enhance
the program’s benefit to the   Steve McMillin
U.S. economy.                  Steve McMillin is a Partner of
                               US Policy Metrics, based in
                               Washington, D.C. Steve has
                               over twenty years of policy
                               experience including careers
                               at both the White House and
                               on Capitol Hill. Steve served
                               as Deputy Director of the
                               White House Office of Man-
                               agement and Budget (OMB)
                               from July 2006 – January
                               2009.
                               Michael Solon
                               Mike Solon is a Partner of
                               US Policy Metrics, based in
                               Washington, D.C. Before Jan
                               2012, Mike was the principal
                               of a Washington consulting
                               firm, Capitol Legistics, which
                               he founded in 2007. Mike is
                               a 25-year veteran of Capitol
                               Hill, with extensive experi-
                               ence in various Leadership
                               offices. In addition to his 14
                               years with Sen. Phil Gramm,
                               Mike worked for numerous
                               House and Senate members
                               as a Staff Director, Economic
                               Policy Advisor, and a Policy
                               Director.
                               Matt McDonald
                               Matt McDonald is a Partner
                               at Hamilton Place Strategies,
                               based in Washington, D.C.
                               Most recently, Matt was a
                               consultant for McKinsey &
                               Company, served as an Asso-
                               ciate Communications Di-
                               rector under President Bush,
                               and served in senior roles on
                               the past three presidential
                               campaigns.

                                                           13
Endnotes:
1. U.S. Citizenship and Immigration Services, “EB-5 Adjudications Policy Memorandum,” 30
May 2013
2. ibid
3. ibid
4. ibid
5. “EB-5 Immigrant Investor Pilot Program” See U.S. Citizenship and Immigration Services
6. Audrey Singer and Camille Galdes, “Improving The EB-5 Investor Visa Program: Interna-
tional Financing For U.S. Regional Economic Development,” The Brookings Institution, Feb.
2014
7. Janet Morrissey, “Visas-For-Dollar Program A Boon To Hotel Developers,” The New York
Times, 6 Sept. 2012
8. U.S. Department of State, “Report Of The Visa Office,” 2013
9. 2015 March Unemployment Rate by County, GeoF.R.E.D.
10. Steven Braun et al., “Understanding the decline in the labour force participation rate in
the United States,” VOX, 18 Aug. 2014
11. 2007 March Unemployment Rate by County, GeoF.R.E.D.
12. Department of Homeland Security, “Immigration Yearbook,” 2013
13. ibid
14. Bureau of Labor Statistics, “State and Local Unemployment Release,” Table E, May 2015
15. James Feyrer and Bruce Sacredot, “Did The Stimulus Stimulate?” The National Bureau Of
Economic Research Feb. 2011
16. Congressional Budget Office, “The Budget and the Economic Outlook: 2010 to 2025,” Jan.
2015
17. David Kay, “The Economic Impact and Contribution of the EB-5 Immigration Program,”
Invest in the USA, May 2015
18. U.S. Department of State, “Final Supplemental Environmental Impact Statement for the
Keystone XL Project,” Jan. 2014
19. Jeffrey Carr and Robert Chase, “Input-Output Analysis—A Way To Measure Economic And
Job Impact,” Economic & Policy Resources, Inc., 15 May 2015
20. U.S. Department of Transportation, “Federal Highway Administration Operations Spend-
ing,” 2014
21. Department of Homeland Security, “Immigration Yearbook,” 2013
22. N. Gregory Mankiw, “How To Make Business Want To Invest Again,” The New York Times
10 Sept. 2011
23. F.R.E.D. Graph: Gross Private Domestic Investment v GDP
24. Diana Farrell et al., “U.S.: From Boom To Bust?” McKinsey & Company, Jan. 2005
25. Elena Duggar and Anne B Van Praagh, “Aging Will Reduce Economic Growth Worldwide

                                                                                                14
In The Next Two Decades,” Moody’s Investors Service 06 Aug. 2014
26. Congressional Budget Office, “Cost Estimate of H.R. 5569,” 9 May 2008
27. Department of Homeland Security, “Immigration Yearbook,” 2013

                                                                            15
Appendix:
Table 1: EB-5 Job Creation Estimates By         Table 2: EB-5 Job Creation Estimates
Industry                                        By State
                            Sum of Estimated                     Sum of Estimated
Industry                    Jobs Created        State            Jobs Created
Apartments                              4492    Arizona                               47
Assisted Living Facility                2849    California                          4381
Condos                                  2089    Colorado                             412
Digital Media Company                     25    Connecticut                         1723
Electric Powered Vehicles                895    District of
Finance                                  728    Columbia                            32
Hospital                                1292    Florida                          8704
Hotel                                  20950    Hawaii                             510
                                                Idaho                            3401
Luxury Home/Condo                        691
                                                Illinois                          1712
Manufacturing                           2982
                                                Louisiana                        1100
Mineral Extraction                       910
                                                Mississippi                         24
Mixed Use                              18023
                                                New Hampshire                     402
Office Building                         2004
                                                New Jersey                         313
Oil & Gas Drilling Plant                2576
                                                New York                        57585
Refurbishing Television
Panels                                    40    No. Mariana
                                                Islands                            4092
Residential                             1189
                                                North Carolina                      2741
Resort                                  3535
                                                Ohio                                 682
Restaurant                              1020
                                                Oregon                               330
Schools                                  1187
                                                Pennsylvania                         309
Grand Total                           67475
                                                South Carolina                      1537
Source: Wright Johnson, LLC                     Tennessee                            236
                                                Texas                              4830
                                                Vermont                            3481
                                                Washington                         4763
                                                Wisconsin                            338
                                                Grand Total                   103685
                                                Source: MB Consulting Group, LLC
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