Two years after the notice of proposed rulemaking, the Department of Homeland Security finally released its final rule regarding the EB-5 immigrant investor program earlier this year, set to take effect on November 21, 2019. The most likely effect once the rule takes effect will be to raise the costs and risks of participating, and hence reduce the flow of investment and jobs that the program creates.

The largest changes to the program come in the form of higher investment thresholds and restricting targeted employment areas (TEAs). Previously, the EB-5 visa was open to applicants who invested at least $1 million or only $500,000 if the investment created 10 jobs in a TEA — a rural or high-unemployment  area where policymakers wanted to incentivize job creation. The new rules raise both thresholds by 80 percent, increasing the higher threshold to $1.8 million and the lower, TEA threshold to $900,000. DHS increased the TEA investment threshold by less than it was considering back in 2017, for a larger differential — and hence a stronger incentive to invest in TEAs. However, DHS also substantially tightened the requirements for areas to qualify as TEAs, meaning many projects that currently enjoy the designation will lose it. 

The immediate effect of these changes has been a mad rush for investors before the November 21 update. Investors are scrambling to make their investments now and to get their I-526 petitions filed before the investment thresholds increase and they would have to invest more money (which they may not have and/or be willing to invest) or forfeit their eventual visa. While we should expect a spike in the number of petitions during this 120 day period, we should also expect a spike in rejections with investors rushing to get forms in by the deadline. We may also expect more imprudent investment decisions driven by haste, cutting into the benefits of the program. And investors in projects that don’t raise enough capital by the deadline may find themselves in losing prospects when the flow of capital dries up. 

The longer-term effects are more concerning. First, raising the costs of participating in the program will shrink participation and hence the benefits that flow from the visas. While it is true that demand for EB-5s outpaces the number of visas available, it does not make sense to try to equilibrate the two by raising the price because the benefits from the EB-5 — foreign investment and job creation — take place before the visa is issued. That makes it unlike, for example, the H-1B program, where it makes far more sense to have the supply and demand equalize, as I’ve written about here. In other words, excess demand may be inconvenient for immigrants waiting for visas, but it’s still beneficial to American workers, who can enjoy jobs while immigrants wait. Increasing visas to shorten the waitlist therefore can make sense, but reducing demand only hurts natives. 

Second, the new TEA rules are bad for the economy and workers. DHS itself estimates that mostexisting TEA projects are potentially affected by the new rule and will lose their TEA designation, making it much harder for them to raise new capital. The current TEA designation system is far from perfect, but it recognizes the simple fact that people commute to work. Seldom do construction workers, for example, live in the very same census tract as the project they are working on, or even an adjacent tract. And just because a new building may serve an area with average unemployment doesn’t mean the construction worker who builds it doesn’t come from an area that’s truly struggling. Flexibility in designating TEAs ensures that workers in high-unemployment areas have opportunities nearby, even if the projects aren’t literally in their own neighborhood. Unfortunately, the new TEA rules will hurt those workers, all while encouraging investment in less valuable projects. Still further, the rules grant new discretion to U.S. Citizenship and Immigration Services in approving TEA “special designations” in a way that reduces transparency and accountability.

Legal challenges to the new rule are unlikely to be successful. And other than the regional center program’s reauthorization, it’s unlikely that any legislative changes to address EB-5 will happen anytime soon. Instead, the changes will wreak havoc on the program, investment will slow, and the jobs that could have been created will never exist.