USCIS Announces Restructuring of EB-5 Program Administration

USCIS Director Alejandro Mayorkas has announced the creation of a new office to oversee administration of the EB-5 Immigrant Investor Program. The Director notes the Service will shortly be adding to transactional attorneys to its ranks, as well as implementing in-person hearings before a Review Board comprised of 2 Supervisory Immigration Services Officers and one economist for any I-924 regional center designation application that has been recommended for denial. The new EB-5 program office will be under the leadership of a new Chief of Immigrant Investor Programs, intended to be an individual with significant business background. It is unclear from the announcement whether this office will continue to work out of the California Service Center.

EB-5 Economist Engagement on Tenant Occupancy RFEs etc.

The long-awaited engagement with the USCIS chief economist, John Rogers, and USCIS Director Alejandro Mayorkas, was held this afternoon. I think it is fair to say the session did not go far to address the critical need for clarity and transparency that prompted the engagement in the first instance, in the wake of the confusion generated by the “tenant occupancy” RFE’s. Indeed, it raised a number of new questions and revealed some fairly startling interpretations.

The most notable aspect of the engagement was the lack of willingness to offer examples or engage in specific discussion. More than once, the economists emphasized the “importance” of ambiguity, and they declined to reveal how they would view specific types of circumstances or data sets. The central underlying message seemed to be that they are willing to be persuaded that in the particular locale and under the particular conditions you can document (using comprehensive, current and well-sourced data that is consistent with industry standards), it is reasonable to conclude that the job creation will occur, will be the direct result of the investment of EB-5 capital, and will be “new” – as opposed to displaced—jobs.

Here are some of the key points we can glean from the presentation:

• The laundry list of data sets and parameters outlined in the tenant occupancy RFE does not equate to a set of firm benchmarks that will lead to denial if they cannot be produced. The economists expressed that job creation methodologies represent an imperfect and evolving science, in which the available and most relevant data will differ dramatically by industry, geography, and conditions affecting the local economic climate. They expect the issues raised by the tenant occupancy RFE to be addressed, with whatever the best and most current and useful supporting data might be, in the required comprehensive business plan.
• Credit for job creation by “tenant” or unrelated businesses may in fact be permitted where there is a “significant, long-term, sustained business/financial relationship” between the new commercial enterprise and the job-creating business, established with documentation, sufficient to make it clear that the functionality of the new commercial enterprise is dependent on the new jobs AND that the new jobs would not have been created but for the investment of EB-5 capital.”

  — The economists emphasized that the existence of a significant business relationship, such as a joint venture agreement or revenue-sharing agreement, would not necessarily mean that ALL of the third party’s employees could be counted, but only those whose jobs were integral to the “functionality” of the commercial enterprise.

  — They further declined to specify what would be considered “long-term” or “sustained.”

  — It does sound like hotel operations using standard management/branding agreements will pass muster on the “nexus” question.

• Job displacement is a key issue. The economists stated that one of the burdens on applicants is to establish that the jobs will be “new,” and that disqualifying displacement can occur from anywhere in the U.S. Some applications of this principal are readily appreciated and have been counseled by prudent EB-5 practitioners for some time (e.g., if we develop a big box home improvement store in town, the net job gain must account for the loss of employees at local hardware stores). But the breadth of the USCIS economists’ statements was very surprising, in that it suggested that somehow project developers should be able to prove with data that the economic stimulus in their local area will not negatively affect the economy in any other area anywhere in the United States. As all job-creating activity affects local, regional, and national economies with direct, indirect, and cumulative impacts (some measurable or foreseeable; others not), is this view creating hurdles that bona fide/net-positive projects could not possibly overcome? This raises further questions about the economists’ adjudicative role, discussed further below.
• Construction timelines and expenditure breakdowns are of great concern. The economists expressed the view that as a general matter, the data available to them suggests that it would be highly unusual for a commercial construction project to require more than 2 years to completion. Construction timelines beyond 2 years or otherwise out of line with industry expectations will have to be explained in the business plan and supported with data. As for construction expenditure breakdowns, the economists want to see detailed itemization of costs. Some soft costs, such as for architectural and engineering fees – during particular phases of construction – will be considered integral to the implementation of job creation and may be validly included as “inputs” in the applicable I/O model. Land acquisition costs, or expenditures relating to the purchase of a structure, may not be included as inputs for purposes of calculating job generation resulting from construction expenditures. Several attendees asked for clarification as to whether this only precluded the land/building acquisition costs from serving as inputs in the economic analysis, or whether they were indicating that expenditure of EB-5 funds on land/building acquisition would be impermissible. Neither the speakers nor the Director could answer the question, but they did indicate a response would be forthcoming soon.

As a lawyer, what I found particularly puzzling throughout this engagement was the procedure by which these economists participate in the adjudication of individual petitions. There is nothing in any of the regulations which suggests that RC applications or I-526 petitions will go through multiple tribunals or decisionmakers. The economists clearly implied they were delegated authority to decide whether to “grant economic benefits” (i.e., credit for job creation). And yet they specifically declined to identify benchmarks, standards, or even a standard of review. The economists were quick to decline questions relating to whether particular fact patterns would be approved, stating that those questions were “adjudicative.” And yet they were clear about the fact that they are making decisions about what job creation “benefits” may reasonably be “granted.” I didn’t hear anything about the preponderance of the evidence standard, and I didn’t hear anything that suggests that adjudicators have independence or applicants have the opportunity to rebut a USCIS economist’s recommendation once their “decision” is made.

Director Mayorkas did commit to providing responses to some of the most pressing questions, as well as providing his prepared remarks on the future of the EB-5 program (not delivered due to shortage of time), in short order – which I understood to mean the next few days. He also invited feedback, specifically requesting not only identification of issues but also proposed solutions to those issues, in e-mails to the OPE mailbox, public.engagement.

Engagement with EB-5 Economists Announced by USCIS (RE: Tenant Occupancy)

The long-awaited public engagement with the EB-5 economists regarding the “tenant occupancy methodology” and other economic methodologies has been scheduled for June 22, 2012, at 3:00 EST. The announcement and invitation to participate may be found here on the USCIS website.

New “Operational Guidance” on EB-5 Adjudications Involving Tenant Occupancy

USCIS has released Operational Guidance dated May 8, 2012 relating to the application of its deference policy in EB-5 adjudications involving “the tenant occupancy methodology.” EB-5 practitioners are still puzzling over the agency’s policy change regarding whether an EB-5 project may be credited with job creation by tenant businesses occupying commercial space developed with EB-5 funds, and this new guidance offers nothing new on the substantive issues. Instead, it is framed as clarification of the agency’s “deference policy,” but raises many more questions than it answers.

The agency offers two examples of when deference would be provided to a previous determination that an economic methodology or a business plan was reasonable. The first example is so narrowly drawn that it appears no deference will be offered unless the Regional Center approval included authorization for a specific, shovel-ready, actual project. (And then, only with respect to that project, but not with structurally identical subsequent projects in different locations.) The second example involves a standalone, “direct” EB-5 enterprise where there is no regional center and thus no economic methodology involved. (How does this illustrate the application of the deference policy in the tenant occupancy methodology context?)

In sum, this new guidance offers little in the way of comfort to developers caught off guard by changing USCIS policies, and it makes clear that optimism in the wake of the Director’s recent assurances about the agency’s deference policy may have been misplaced.

USCIS Requests Comments on Form I-924

USCIS has published a notice in the Federal Register requesting public comment on Form I-924, the EB-5 Regional Center application, in connection with its evaluation of whether and how to revise the form. Comments will be accepted for 60 days until July 9, 2012. Written comments and suggestions should be directed to the DHS, USCIS, Chief, Regulatory Coordination Division, Office of Policy and Strategy, 20 Massachusetts Avenue NW., Washington, DC 20529-2020. Comments may also be submitted to DHS via facsimile to 202-272-8518 or via email at USCISFRComment@dhs.gov. When submitting comments by email, the OMB Control Number 1615-0061 should be referenced in the subject line.

EB-5 Program Update – Few New Insights from USCIS

During this afternoon’s much-anticipated Quarterly Stakeholder Engagement, held at the California Service Center, the agency offered few (if any) insights into its views on issues of pressing concern to the EB-5 community, such as tenant occupancy-based job creation methodologies, parameters on the use of bridge financing, and indirect construction jobs. USCIS declined to address questions relating to the tenant occupancy issue, and they somewhat startlingly further indicated that Stakeholder Engagements were in general an “inappropriate forum” in which to request guidance on matters of agency policy.

While we could comment at length about what the agency did not say, it may be more constructive to offer the few tidbits of trivia that can help to round out our understanding of the current state of the program. For example:

* 2600 EB-5 visa numbers had been used as of the end of March 2012, and usage continues to increase exponentially. 800 EB-5 visa numbers have just been allocated for the month of June in Guangzhou (China) alone. China, South Korea, Taiwan, Iran and Venezuela are the highest users of the EB-5 program at this time.

* USCIS believes the case-specific email “mailboxes” that are made available to I-924 applicants are underutilized.

* A new “iteration” of the agency’s Draft Policy Memo is expected to be posted for public comment within the “next couple of weeks.” The policy memo is still considered a discussion draft and is not being followed by the agency.

* There will be individual communications forthcoming regarding extensions for responding to tenant occupancy-related RFE’s.

* There are separate case processing queues for initial Regional Center designations and Regional Center amendments (but neither case type has priority over the other).

We will be looking forward to a more substantive engagement with the USCIS economists, per the Director’s April 27th comments, and hope to have news of that event soon.

Tenant Occupancy Update

Today, during a Conversation with the Director scheduled on short notice, USCIS Director Mayorkas provided insight into the agency’s current perspective on the “tenant occupancy” issue that has introduced extraordinary uncertainty into pending and future EB-5 adjudications. The “tenant occupancy” issue, in summary, refers to questions raised by newly hired USCIS economists as to whether it is reasonable for the economic models used by Regional Center-based projects to include jobs that will be created by independent businesses leasing commercial premises developed with EB-5 funds.

Director Mayorkas did not provide any clarification as to the substance of the agency’s current position on these issues. The Director’s central message was twofold: (1) USCIS does not believe the recent questions regarding tenant occupancy methodology represent a change in policy; and (2) the agency’s intent is to adhere to a policy of deference to prior adjudications where the predicate facts underlying the previous determinations have not materially changed.

In connection with the deference policy, Director Mayorkas expressed interest in considering whether there could be changes in the facts relating to a given project that would not necessarily be material to the determination of whether the economic model was reasonable (or as expressed by the Director, whether a “new project” using a “previously approved economic methodology” might not change the “predicate facts” leading to the reasonableness determination. When presented with examples of RFE’s or NOIR’s seemingly issued in contradiction to the “deference policy,” Director Mayorkas invited stakeholders with adjudications that seem inconsistent with the policy to submit their specific concerns to headquarters via the Office of Public Engagement (“OPE”) email address: public.engagement@uscis.dhs.gov. Similarly, the Director invited stakeholders to submit via the OPE their specific concerns about RFE’s that lack clarity or request information or data that is not or could not reasonably be accessible or obtainable.

In light of the consensus among all participants, including the Director, that the goals of predictability and transparency would best be served by an opportunity for public engagement with the USCIS economists, the Director committed to scheduling such an engagement at the earliest practicable opportunity. He did not anticipate that opportunity would or could be made available prior to the agency’s imminent deadline for many (or all) recipients to respond to “tenant occupancy”-related RFE’s. Director Mayorkas did leave open the possibility that the agency could extend the deadline for response, but he clarified that no such extension would be granted without a clear agency directive to that effect.

Finally, the Director articulated the goal that an engagement with USCIS economists would result in the publication of a “Tip Sheet,” designed to provide practical guidance to applicants that would serve the universal goal of predictability in adjudications. (We do wonder why the Director seems to view the idea of an engagement with the economists as novel, given that nearly all of the extensive commentary published or articulated in the wake of the mass tenant occupancy RFE’s expresses confusion about what specifically the USCIS economists think they are asking for.)

Disturbingly, the Director revealed that the agency has significant concerns about fraud and misrepresentation in EB-5 petitions and applications, and that it is engaging enforcement authorities to assist in maintaining the integrity of the program. We applaud the agency for ensuring that the EB-5 program is reserved for those who are genuinely serving its goals of providing regional economic growth and sustainable employment for U.S. workers. We also recognize that some of the risks of abuse could be lessened with modifications to the petition processes currently prescribed by the regulations. For example, the potential for misrepresentation relating to project details and projected or actual job creation could be greatly curtailed if the projects themselves had legal standing (and therefore control) to make representations about the new commercial enterprise/job creation in connection with the I-526 or I-829.

It was clear at the conclusion of the meeting that there were no new insights to be gleaned regarding what USCIS economists might accept as “reasonable methodologies” where tenant occupancy issues are involved; however, it was clear that the agency continues to be interested in fostering predictability in the program and engaging in meaningful dialogue where adjudication standards seem to conflict with contemporary business realities.

EB-5 Update: USCIS Provides Insight into Delayed I-924 Adjudications, Cites “Tenant Occupancy” Methodology

The USCIS Office of Public Engagement issued a statement on February 17, 2012, regarding the internal agency debate over certain economic methodologies that has delayed for many months the adjudication of dozens of I-924 Applications for Regional Center Designation. The statement offers no guidance to applicants with respect to the standards by which the agency’s in-house “experts” have determined they will evaluate the merits of these applications, noting that RFE’s will now be issued to those applicants whose economic methodologies are in question, giving the applicants an opportunity to respond on the record. The issue appears to focus on job projections based on a “tenant occupancy” methodology. The USCIS statement reads as follows:

The “tenant-occupancy” methodology seeks credit for job creation by independent tenant businesses that lease space in buildings developed with EB-5 funding. USCIS continues to recognize that whether it is economically reasonable to attribute such “tenant-occupancy” jobs to the underlying EB-5 commercial real estate project is a fact-specific question. Each case filed will depend on the specific facts presented and the accompanying economic analysis. USCIS is now moving forward with the adjudication of certain pending I-924 Applications For Regional Centers Under the Immigrant Investor Pilot Program that are supported by the “tenant-occupancy” economic methodology.

Our newly-hired economists and business analysts will be bringing expertise to these new adjudications, and requests for evidence will be issued to certain applicants and petitioners to address any questions or issues we have about the economic methodologies employed in their specific cases. Our adjudications will continue to be made on a case-by-case basis and we do not intend to revisit factual findings. I-526 Immigrant Petitions by Alien Entrepreneurs and I-829 Petitions by Entrepreneurs to Remove Conditions will have predictability in connection with early regional center adjudications.

Upcoming EB-5 Workshop March 5, 2012 in Orlando, Florida

Carroll & Scribner, P.C. attorneys Ed Carroll and Susan Pilcher will be featured in a full-day, comprehensive workshop on the EB-5 Immigrant Investor Program sponsored by immigration law publisher ILW.com in cooperation with the University of Central Florida. Mr. Carroll will be moderating the workshop in its entirety. Information about the program and speakers can be found here.