EB-5 Regional Center Program reauthorized as part of Omnibus Spending Bill

After having lapsed over the summer of 2021, the EB-5 Regional Center Program (“RC Program”) was reauthorized as part of the Omnibus Spending Bill passed by Congress last week.

The bipartisan effort to reform and reauthorize the RC Program, led by Sens. Pat Leahy (D-VT) and Chuck Grassley (R-IA), has been years in the making. When navigated properly, the reauthorization of the RC Program represents a renewed and valuable source of foreign capital available to be deployed in appropriate job-creating projects across the country.

Entitled the EB-5 Reform and Integrity Act of 2022, the bill revises several key aspects of the RC Program, including: a five-year reauthorization time frame, an adjustment in the investment threshold amounts, a regulatory definition for targeted employment areas, several important investor protections, and additional security and integrity measures. This client alert highlights each of these key components.

Key Points:

Reauthorization Timeline and Base Investment Threshold Adjustment

The RC Program has been reauthorized through Sept. 30, 2027, for a total of five years. As part of the renewal, the investment thresholds for immigrant investors have increased—in targeted employment areas (TEAs) from $500,000 to $800,000, and in non-TEAs from $1,000,000 to $1,050,000.

Statutory Definition of Targeted Employment Areas and Associated Visa Set-Asides

A significant change to the RC Program is the inclusion of a statutory definition for TEAs, which include high unemployment areas, rural projects and infrastructure projects. Under the new law, TEAs qualify for both the lower investment level and visa set-asides. High unemployment areas are areas that can only be designated by DHS and where the unemployment rate in a given census tract (or contiguous census tracts) is no less than 150% of the national average unemployment rate. Rural projects are those that are outside a metropolitan statistical area, or within the outer boundary of any city of town with a population of 20,000 or more. Importantly, under the new law, DHS is obligated to “prioritize” processing of investor applications for rural projects. Infrastructure projects are a “capital investment project” that must be a “public works project” administered by a “government entity” that contracts with a regional center.

There is a reserve of visas set aside annually for TEAs—20% of visas available under the RC Program each year will be reserved for immigrant investors in rural projects; 10% will be reserved for investors in DHS-designated high unemployment areas; and 2% of the visas will be reserved for immigrant investment in infrastructure projects. An additional highlight from the reformed RC Program is that any unused visas from the above-referenced 32% reserve that remain unused from any given year will carry over to the following fiscal year, creating potential for a greater investment pool in a given year, depending on the timing of the project being considered and the number of unused visas from the prior year.

Investor Protections

The RC Program reauthorizing language included a number of important provisions focused on protecting foreign investors. The children of principal investors are now protected from “aging-out” of their visa opportunity after they turn 21 as long as they remain unmarried and the principal investor is approved as a permanent resident and the principal investor files a petition for the child to remain in the U.S. no later than one year after the child’s conditional status has terminated. In addition, USCIS was directed to put in place regulations that allow EB5 commercial enterprises to “redeploy” capital anywhere in the U.S. in order to keep foreign investments “at risk.” A “grandfathering” provision was also included that ensures that in the future, if Congress fails to reauthorize the RC Program after it expires on Sept. 30, 2027, investor petitions filed on or before Sept. 30, 2026, will continue to be processed regardless of the program status.

Security and Integrity Measures

In an effort to increase integrity and security throughout the RC Program, regional centers must now adhere to a set of statutory requirements that have been more robustly defined. USCIS now has clear authority to deny regional center business plans where applicants have engaged in fraud, criminal conduct or where a plan would threaten national security, and no person convicted of a crime in the last 10 years, or civil fraud resulting in liability of more than $1 million can be involved in the EB5 program. USCIS is now also obligated to audit each reginal center at least once every five years and conduct site visits, and regional centers are obligated to submit annual investment activities statements to USCIS. Failure to submit these statements or submitting inaccurate statements can result in USCIS imposing civil penalties on a regional center, suspension of a regional center’s ability to operate and even permanent “debarment” of a regional center. In addition, new “source-of-funds” requirements will ensure investor funds are from legitimate sources. The reauthorizing language also specifies that U.S. securities laws apply to all aspects of EB5 offerings.

Additional measures related to the security and integrity of the RC Program and its general administration were included in the reauthorization and warrant careful consideration by program participants.

Next Steps:

With the reauthorization of the RC Program, any pending applications from immigrant investors that have been on hold since the RC Program lapsed last summer will begin to be processed, and there will likely be a coinciding influx of applications from immigrant investors hoping to take advantage of this renewed opportunity. The reauthorization of the EB-5 Regional Center Program will result in a significant pool of new foreign capital flowing into regional centers, which represents a valuable financing opportunity for program users.

Opportunities:

Successfully navigating the revitalized EB-5 program will require help from an experienced team well versed in its nuances. Brownstein has over a decade of deep experience managing EB5 transactional and securities law matters as well government relations for program participants. We have closed well over $1 billion in EB-5 financings, representing projects with a total of over $5 billion in value. Let us know how we can help you with your next EB5 project.