A Senate Bill has been Introduced. What Should Regional Centers and Issuers Do Now?
Ron Klasko: You can make the mistake of taking this bill too seriously or not seriously enough. On the one hand there are bills introduced everyday in the Senate, thousands of which are never discussed in committee or anywhere else. The difference here is that this is a rare, bipartisan bill sponsored by the lead Democrat and the lead Republican on the Senate Judiciary Committee, and contains a lot of things that the Administration has been pushing for, so it apparently has the support of the Administration. Once you have agreements at that level, it is something you're going to take very, very seriously.
With that said, the bill in many ways is extreme and it has already engendered a lot of opposition in the Senate. There are major advocacy efforts going on right now that show signs of being successful.
I would say that the chances of the bill passing the Senate in its present form would be pretty slim. Nor is the House enamored with this bill and it is very likely that it will be proposing its own bill. The end result, in my opinion, are that the chances of something actually becoming a law before the September 30 expiration of the regional center program are very small. It could happen, I just can't see exactly how it would happen.
Now even though I don't think this is going to become law in its present form, we are certainly advising clients that there are some action items that are critical to be taken now because I do believe that there will be some changes in the EB-5 program in the relatively near future and some of the provisions in this bill may well be in it.
There are certain critical things to do to potentially grandfather a project or an investor under the existing law because any changes included in a new bill are likely to make it much more restrictive. The two major actions that I would suggest be taken today are:
- It is a very good idea to file an exemplar petition for any project before the effective date of the new law. The filing of an exemplar petition under this bill pretty clearly grandfathers the investment amount, assuming it's in a TEA, at an investment amount at $500,000 by grandfathering the definition of a TEA. It wouldn't necessarily grandfather the TEA, just the definition of the TEA, because the TEA is determined at the time an investor makes an investment. We may file an exemplar to grandfather a project today but an investor may not invest in it until 2016 or 2017. The result would be that the present definition of TEA, with census track aggregation and state certification, would be applied at the time of investments that are made in 2016 to 2017. This is a huge deal because the amount the investor (alien entrepreneur) must invest is likely to go up from $500,000 to $1,200,000 (assuming the new TEA eligibility requirements do not qualify the project in question) and the majority of projects currently defined as TEAs would not be TEAs under the language of the Grassley Leahy Bill.
- There are significant changes in the law relating to source of funds. There are changes in who can gift money and changes to loans and other changes regarding source of funds and all of those changes under this bill would apparently apply to any petition pending should the bill pass. Obviously any I-526 that is filed today is still most likely to be pending a year from now. So even though the source of funds may be perfectly fine today, by the time the investor’s money is invested in the project and the petition is adjudicated, the source of funds may no longer be good. Well that's a big deal and as a result we're advising our clients to follow the restrictive language of the Senate bill in terms of what we're using as sources of funds because if this passes, we would then still have an approvable petition as opposed to using gifts or loans that would not be approvable if this law were to pass.
Another item is that every part of this law has a different effective date and a lot of it is inconsistent. Some of it really is completely unworkable and illogical.