Why Split Hairs Over a Viable Economic Development Program?

The EB-5 Regional Center Program is a thriving engine of job creation, with an economic impact in just about all 50 states across a broad range of industries. In early 2014, the Brookings Institute estimated that the program has generated at least $5 billion in investment in U.S. businesses and has created at least 85,500 direct full-time jobs since its creation. With more than 13,000 pending applications this year, certain proposed reforms to the EB-5 program put in jeopardy at least $6.8 billion more in foreign direct investment, all generated without any expense to the U.S. taxpayer.

The EB-5 Regional Center Program's success has been well-documented by economists and the bipartisan support of policymakers has merited its reauthorization more than six times over, but that fact is getting drowned out by a handful of vocal critics of the program's advancement in major urban centers like New York or Los Angeles. These critics are arguing that larger, urban projects are taking foreign investment away from high unemployment areas.

While reform is absolutely necessary to improve and expand the EB-5 program, Congress should exercise caution when tinkering with the program's incentives to boost financing in certain areas or risk dampening EB-5's overall economic impact. In a recent economic analysis from the EB-5 Investment Coalition, two former government economists write, "By creating more restrictive job requirements and rules that may favor rural investment over urban investment, proposed reforms will only inhibit the ability of the program to create jobs....There is no economic reason to favor rural over urban investment."

Despite that economic reality, some reformists inside and outside of Congress argue that there must be a leveling of the playing field for communities under the EB-5 program. However, this effort to punish urban areas for their success under EB-5 seems to ignore two critical aspects about how EB-5 works, and how certain jobs are created by the program.

For one, under proposed legislation sponsored by Sens. Patrick Leahy (D-Vt.) and Chuck Grassley (R-Iowa), the desire to curtail the program's use in cities like Manhattan and Los Angeles will have a negative impact on job creation in places like Louisville, Chattanooga and Pittsburgh - smaller urban areas that are reaping the benefits of this program too. If the current Leahy-Grassley Senate legislation in Congress is passed, the minimum investment amount for communities like these will be doubled, just as they will be in Manhattan. The change would impact the fate of projects able to stimulate the local economy in smaller cities: like a new hotel in Des Moines poised to create 472 new jobs and bring $1.2 billion in new investment to the region, or a $410 million Newbury Complex in South Fayette, estimated to create over 9,700 jobs in the burgeoning suburb outside of Pittsburgh.

Second, many critics of urban EB-5 projects ignore the economic realities of commuting patterns when they argue against projects located in developed urban areas. Determining whether or not a project impacts areas of high unemployment should be based on sound data consistent with the economics of labor and commuter-shed analysis, for example. Thousands of people who have jobs because of EB-5 investments commute to urban project sites from areas with few employment prospects. Take a new EB-5 funded Burger King franchise in downtown Chicago: many employees take a quick trip on the "L" or drive down the Dan Ryan to get to work from areas of much higher unemployment than downtown. One of these employees is Assistant Manager Angela Murdock, a mother with three kids who commutes everyday to receive the on-the-job training and management experience that she hopes will open her career to new professional opportunities in the food services industry. Furthermore, unemployment rates in downtown business districts can be misleading, as these areas can sometimes have few residents. Locating a project in an area with low unemployment does not necessarily mean that workers from high-unemployment areas do not benefit.

Even under the current guidelines, rural projects are still finding investors. For example, Dakota Spirit AgEnergy, a new ethanol plant, received $75 million in EB-5 investment and is creating 1,838 direct jobs and another 2,001 indirect jobs for the rural community of Jamestown, North Dakota. One of those new employees is Cathleen O'Higgins, who moved from a major metropolitan area to Jamestown and says that in her small rural community, she is able "to lobby ethanol, to educate the community and people who know [her]." She is now considering getting an advanced degree in environmental studies.

Unlike many of the reforms proposed by program critics, smart government policies can give rural investments a better chance to succeed in the market without derailing the EB-5 program's ability to create jobs in urban areas. Rural projects have proven they can succeed under the current system through the support of state and local governments, economic development agencies, trips abroad to raise a project's profile and other smart marketing techniques. However, there are ways the federal government can help small and/or rural projects without eliminating the ability of large urban projects to benefit from the program, such as using existing Census commuting patterns surveys to assess unemployment rates at a project site, or designating a percentage of funding to rural projects each year that, if unused, could roll over to the following year.

Instead of attacking the success of the EB-5 program in places where it has created so much benefit, Congress should embrace the program for what it does so well--create American jobs at zero cost to taxpayers. Instead of fighting over which city these jobs are created in, Congress should expand the impact of the program and increase the amount of visas available. Currently, EB-5 represents a small percentage of all immigration into the United States. Instead of splitting hairs over rural and urban, we should focus on the big picture; this form of immigration benefits our country by creating jobs. And that is something our country could use much more of.

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Mentions

• Chuck Grassley
• Patrick Leahy

States

• New York