Although immigration has been a leading and controversial issue in recent presidential primary campaign debates, a lesser-known part of the nation’s immigration policy has been extended with barely a notice. On September 30, 2015, the U.S. Congress provided a temporary extension of the employment-based fifth preference visa, which is commonly referred to as the EB-5 Visa Program. The program, which was created by Congress in 1990 to “stimulate the U.S. economy through job creation and capital investment by foreign investors,” allows qualifying investors to gain permanent residency status in exchange for significant investment in the United States.
Foreigners who invest one million dollars (or $500,000 if the investment falls within a high-unemployment or rural area) into a new business or into saving a failing business can gain residency provided they can demonstrate their investment will likely create at least 10 permanent jobs in a local or regional economy. In return for the investment and job-creation, immigrant investors are granted permanent U.S. residency following a period of conditional residency during which they demonstrate the economic impacts associated with their investments.
The United States is not alone in offering these types of immigration options to experienced business people and investors. Most notably, Canada established an “Immigrant Investor Program” that allowed foreign investors to give $800,000 Canadian dollars, in the form of an interest-free loan for five years, to the Citizenship and Immigration Canada (CIC) organization, which then distributed those funds to its participating provinces/territories. In return, the foreign investor was granted a permanent resident visa.
The express purpose of the Canadian program was not dissimilar to the U.S.’s EB-5 program in that the goal was to “have experienced business people contribute to Canada’s growth and long-term prosperity by investing in Canada’s economy.” In early 2014, Canada cancelled its Immigrant Investor Program largely due to issues surrounding public perception, rather than economics. It seems the biggest criticism of the Canadian program is that it had “become an express lane for wealthy Chinese hoping to secure overseas residency” (Michael Cole, “Canada Slams Door on 45K Chinese Millionaires With End of Visa Program,” Forbes Magazine, February 13, 2014).
The temporary extension of the U.S. program enables EB-5 visa applications, which have seen exponential growth in recent years, to continue to be filed while policymakers in Washington D.C. determine what changes, if any, they will make to the program’s requirements including how targeted employment areas (TEAs/high-unemployment areas) are determined, what costs can and cannot be counted toward job creation for EB-5 purposes, and a host of other issues pertaining to the EB-5 program.
And while the EB-5 Visa Program may present political challenges for lawmakers in Congress, as happened in Canada, the economics of the EB-5 program are fairly straight forward. Beacon Economics regards the EB-5 Visa Program as the proverbial win-win-win: U.S. businesses win because they gain access to a relatively cost-effective means of project financing needed to develop, save, or grow a business; the foreign investor wins because they are primarily motivated by the benefits of the immigration status rather than returns on their financial capital; and the U.S. economy wins because the investments must be shown ex-ante to be likely to generate both direct and secondary jobs throughout the economy.
Central to economic theory is that many forms of economic stimulus force us to make trade-offs. We can invest in our schools and colleges/universities, but that leaves less money available to invest in infrastructure. We can scale up our domestic social programs, but we may have to reduce the size of our defense budget. The EB-5 program is unique in that these investments truly represent outside dollars coming into the United States economy with little downside risk—at least not from an economic standpoint.
In addition, the economic impact studies associated with the EB-5 Visa Program do not even account for the uptick in economic activity attributable to the investors themselves. Virtually all investors receiving EB-5 visas are ultra-high net worth individuals. Once here, these immigrants will create a large amount of economic activity above and beyond the benefits of starting/growing a business as they rent or purchase real estate for themselves and their families, spend money at local retail establishments, purchase new vehicles, take their families out to eat at restaurants, and take trips that stimulate demand at airports and hotels across the country. In fact, this not insignificant level of spending might even merit a 4th type of “win.”
None of this suggests that the EB-5 program has been without issues. Some investors and regional centers have not had positive experiences. And, like many other programs, EB-5 needs to be monitored for fraud and abuse. However, the economics of the EB-5 Visa Program are clear: these investments provide a shot in the arm for the U.S.’s domestic economy. While Congress has work to do to ensure the program incentives line up well with national policy priorities, it would be wise to continue to allow this important and growing flow of financial capital to play a role in our local markets.