Chuck Grassley

United States Senator from Iowa

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Gerrymandering in EB-5 Program Flies in the Face of Congressional Intent

Oct 07, 2015

Prepared Floor Statement of Senator Chuck Grassley of Iowa
Chairman, Senate Judiciary Committee
United States Senate
EB-5 Regional Center Investment Program Targeted Employment Areas
Wednesday, October 7, 2015

Mr. President,   

I want to talk today about an immigration program, known as the EB-5 Regional Center Investment Program, and the serious concerns I have about continuing this program without reforms.  The program was just extended in the continuing resolution to keep the government funded, but I want to talk about the changes that need to be made before, and if, it is extended again.

The EB-5 program was created by Congress in 1990.  A foreign national can invest one million dollars in a new commercial enterprise that creates 10 full-time jobs, and in turn, receive lawful permanent residence and then citizenship.  The required investment amount is only $500,000 if the investment is made in a “Targeted Employment Area,” defined to be a rural area or an area with high unemployment.
 
The EB-5 Regional Center Program allows investors to pool their investments for a project.  And, they can meet the job creation requirement by providing evidence of indirect jobs.

In previous speeches on the floor, I have talked about the national security and integrity issues associated with the program.  I have detailed the risks and expressed concern about the lack of oversight by the administration.

Today, I want to focus on one particular abuse of the program and how it’s not fulfilling the intent of the law.  

Perhaps the greatest violation of Congressional intent that has evolved over the years is the manner in which so much of the investment money coming into Targeted Employment Areas has been directed towards lavish building projects in well-to-do urban areas.  

Four-star hotels and commercial office buildings are being built with foreign investment dollars in affluent urban neighborhoods rather than high unemployment and rural areas, which Congress intended to benefit.

This has been done by “gerrymandering” the boundaries of the Targeted Employment Area to include, at one end, the affluent census tract in which the building project is located, and at the other end, perhaps many miles away, a census tract with high unemployment.  

One of the most notorious examples of this gerrymandering to push the boundaries is the Hudson Yards project, a group of luxury apartment buildings and office towers in mid-town Manhattan.  

Even the Wall Street Journal, which never met a business project it didn’t like, reported on how this program has been abused.

The Wall Street Journal explained how the Hudson Yards project qualifies for the lower investment threshold, despite the affluent mid-town location of the project, because the boundaries of the Targeted Employment Area were manipulated to include a public housing project in upper Manhattan.  

Another project that flies in the face of congressional intent is located in lower Manhattan near Wall Street.  As the New York Times reports, the Battery Maritime Building has been classified as being located in a Targeted Employment Area based on a gerrymandered area that “snakes up through the Lower East Side, skirting the wealthy enclaves of Battery Park City and TriBeCa, and then jumps across the East River to annex the Farragut Houses project in Brooklyn.”  

In other words, the developers did everything they could to include the Farragut Houses project --- which is a public housing community – to come in at the lower investment level.  

The New York Times went on to say that, “the small census tract that contains the Farragut Houses has become a go-to area for developers seeking to use the visa program: its unemployed residents have been counted toward three projects already.”

Watchdog.org, a national watchdog group that has followed abuses of the program closely for years, has also identified another problematic gerrymandered Targeted Employment Area.  They reported that a 21-story residential building project that included trendy restaurants and shops was built with foreign investments, despite its location in an upscale neighborhood with 0.8 percent unemployment.

These are just a few examples.  Yet, they point to the clear problem with this program.  When it was created by Congress, we set two different investment levels, and clearly tried to steer this foreign capital to high unemployment and rural areas.  That’s not happening.

The Wall Street Journal reports that at least 80 percent of program money is going to projects that wouldn't qualify as being in Targeted Employment Areas without “some form of gerrymandering.”  Meanwhile, the Journal adds, people wanting to raise money for projects in rural areas and low-income parts of cities say they find it increasingly hard to compete.

Even the Washington Post has become fed up with the way in which the intent of Congress has been violated.  In a September 6 editorial, after discussing the program’s numerous economic and integrity failings and suggesting that the program lapse, the Post writes: “The EB-5 program is supposed to favor distressed economic areas, but the definition of a needy zone has been stretched to include nearly the whole country, including hot downtown real estate markets.”  

I ask unanimous consent to include the articles I referenced in my remarks.

Let me end by saying again that the program is in need of reform.  In June, Senator Leahy and I introduced S. 1501, a bill that would substantially reform the program by improving program oversight, addressing national security vulnerabilities, and restoring the program to its original intent.  

I hope my colleagues will take an opportunity to understand how the program is being used and abused, and review the proposal that Senator Leahy and I have put out.

I yield the floor.

 

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