A fight over foreign investments in real estate is pitting New York and Texas against Vermont and Iowa.
Sen. Charles Schumer (N.Y.), who is slated to lead Senate Democrats in the next Congress, wants to make sure the government doesn’t make it harder for foreign investors to obtain visas if they invest in projects like New York high-rises.
He has signed onto a bill drafted by Sen. Jeff Flake (R-Ariz.) that would renew and strengthen oversight of a foreign visa investment program that has the support of Sen. John Cornyn (Texas), the second-ranking Senate Republican.
But Schumer is facing a challenge from Sens. Chuck Grassley (R-Iowa) and Patrick Leahy (D-Vt.), who have drafted rival legislation that would crack down on fraud in the visa program while bolstering the requirements meant to direct investors toward low-income and rural areas.
The Senate Judiciary Committee, chaired by Grassley, will hold a hearing Tuesday on the program at the center of the fight: the EB-5 visa process, which lures cheap capital to the U.S. on the promise of eventual citizenship.
Created in 1990, the program gives visas to foreigners who invest at least $500,000 in U.S. projects run by government-approved business called regional centers. These businesses range from big-city high-rises and medical centers to rural agriculture and energy farms. When a project is done, a foreign investor can earn permanent legal status.
The EB-5 program has exploded in popularity, with the number of visas granted jumping from 3,000 in fiscal 2011 to over 9,000 in fiscal 2014, according to data from the State Department.
But the program — set to expire in September 2016 — is also riddled with fraud and national security problems.
Several Government Accountability Office (GAO) reports have uncovered serious issues in the program, and accounts of misrepresented projects and deceitful investor pitches are common.
A GAO report from December 2013 found that the U.S. Citizenship and Immigration Services was “limited in its ability to prevent fraud or national security threats and could not demonstrate that the program was benefiting the U.S. economy and creating full-time employment as required by law.”
The GAO documented additional problems in August, including the difficulty of weeding out foreign funding from illegal activity, the potential for corruption and the lack of authority among officials to deny applications based on fraud or national security concerns.
Grassley, a long-time EB-5 critic, and Leahy, whose home state boasts a popular ski resort built on EB-5 cash, have teamed up to address those issues in legislation that would renew the program for five years. Their bill would crate new oversight and safeguards for EB-5 visa projects, most of which are broadly accepted by lawmakers and business advocates.
But language in their bill has sparked a fight over where investment money can and should go.
Grassley and Leahy’s bill seeks to redefine what counts as a targeted employment area (TEA) — the economically struggling neighborhoods where investors can fund projects at a lower cost.
Supporters of the Grassley-Leahy bill said that it would help even the playing field by raising investment requirements and preventing TEA gerrymandering. They say the program should be changed to direct more money to struggling areas.
But Schumer, Cornyn and Flake say the Grassley-Leahy bill favors rural projects over urban ones, and blocked the act from being included in December’s omnibus government funding bill.
“I can say with certainty that the status quo will not benefit Middle America,” Grassley said in a Dec. 17 floor speech after his measure was left out of the omnibus. “It benefits New York City and other affluent areas at the expense of areas in Iowa, Kentucky, Wisconsin, and Vermont.”
Schumer, Flake and Cornyn’s proposal for renewing the program includes much of the anti-fraud oversight but excludes the TEA adjustment, which is opposed by several home state businesses. Those businesses were also concerned that some current projects would be killed if they didn’t meet the Grassley-Leahy bill’s new requirements, according to the lobbyists who represented them.
All three of the senators have a lot on the line in the EB-5 fight.
Schumer’s New York City is a hub for foreign real estate investment, with one downtown Manhattan mixed-use project alone landing $600 million in EB-5 funding.
In Cornyn’s Texas, Dallas-based Civitas EB-5 Capital manages two regional centers and has raised more than $500 million through the visa program.
And in Flake’s Arizona, the Phoenix-based Green Card Fund regional center claims more than $250 million in EB-5 investments.
“There should be reform,” Schumer told The Hill last week. “Grassley’s reform proposals I think most people agree on. It’s the distribution between urban and rural that needs to be worked out.”
Senators on both sides say they’re hopeful for a deal, with Tuesday’s hearing representing the first step toward that goal.
But the fight in December has heightened tensions.
In pushing for their reform bill, Grassley and Leahy were joined by their House Judiciary Committee counterparts, Chairman Bob Goodlatte (R-Va.) and ranking Democrat Rep. John Conyers (Mich.).
They say their bill should not be controversial because it has been vetted by colleagues and is supported by scores of businesses and civil rights groups.
“We’re both determined to try again,” Leahy said of his proposal with Grassley. “It could be a very good program, especially in some rural areas, but only with some real reform."
Opponents claim the Grassley-Leahy bill is half-baked and needs to go through regular procedure before being wrapped into the massive government funding package.
“There’s a lot of common ground.” said Cornyn, “but rather than try to pass it in an omnibus appropriation bill without having much in the way of daylight or transparency involved, we need to have a hearing and then a regular markup.”
“I think it can be worked out,” added Schumer. “I hope.”
- Green Card Fund
- U.S. Citizenship and Immigration Services
- Patrick Leahy
- Chuck Grassley
- Civitas Capital Management, LLC
- New York
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