Hart Hodges and James McCafferty from Western Washington University’s Center for Economic and Business Research (CEBR) have released a new study detailing the $45 billion economic impact of the federal government’s EB-5 Immigration program, designed to encourage investment by qualified foreign investors in new businesses in the United States.
Under the program, designed to spur economic growth, each investor is required to show that at least 10 new jobs were created or saved as a result of the investment, which must be a minimum of $1 million or $500,000 if the investment is made in certain high unemployment or rural areas. Successful investments could provide a path for the principle investors and their family members to obtain their green cards - lawful permanent residence in the country.
This program, which was created by Congress in 1990, is known as “EB-5” for the name of employment-based fifth preference visa classification that the qualified investors and their eligible immediate family members would receive. About 80 percent of EB-5 investors come from four countries: China, South Korea, Taiwan and the United Kingdom.
Part of what makes the program so controversial is the challenge in estimating the jobs that are likely to be created by any given investment in an approved EB-5 regional center, along with the challenges of documenting the actual job creation, said Hart Hodges, an associate professor of Economics at Western and who along with WWU’s James McCafferty is one of the authors of the study.
“You can get an economic impact statement to say just about anything you want it to,” said Hodges. “For example, someone might claim that building a new retail space will create a certain number of jobs. One the one hand, yes – a certain number of construction jobs do get created, but in the early days of the EB-5 program, there was discussion about whether the jobs in the retail establishments should be counted. It is not clear that those jobs were created by the investors who helped build the space. In short, it’s been hard to figure out what to count and how to count it.”
In 1992, under Section 610 of Public Law 102-395, Congress established the EB-5 Regional Center Program to permit designated business entities (the Regional Centers) to aggregate EB-5 capital investment from multiple qualified foreign investors in order to invest in economic development projects that were approved by the U.S. Citizenship and Immigration Services (USCIS). An EB-5 Regional Center – which can be publicly owned, privately owned, or a public-private partnership – is designed and regulated by USCIS with the purpose of promoting economic growth in a given geographic area.
Over time, USCIS has created and revised its guidelines for what jobs can be counted and how to count them – noting that the foreign investors have to make their investments based on estimates of job creation and receive credit only if those jobs are actually created. There is obviously room for unethical behavior in the process, but there are also many parties trying to create best practices and to ensure the EB-5 program is credible and helpful to all parties.
“In looking at the EB-5 program overall, we found that $11.2 billion was invested through the program in 2014 and 2015, representing 2 percent of all foreign investment in those years. This contributed more than $33 billion to the U.S. GDP and more than $4 billion in federal, state and local taxes,” said Hodges. “The contribution from federal taxes alone exceeds the federal appropriation for local economic development by 660 percent. Much of this investment was made in projects that would not have been possible but for that investment, suggesting there is real value in the program.”
This investment supported 184,700 direct jobs. In total some 207,000 US jobs were supported by these investments through various economic multiplier functions – 4 percent of the nation’s job growth during this time period. Full impacts by sector are included in the report.
“We came away from the study with a different view about how foreign investors see the program. For example, the most often cited reason foreign investors gave for participating in the program was to create an opportunity for family members to pursue education in the U.S. Relocating their entire family to the U.S. was not high on the list or necessarily to be expected,” he said.
The new study is available online at https://cbe.wwu.edu/files/2014-15%20EB-5%20Economic%20Impact%20Report.pdf. Students also played a significant role in the impact analysis and report preparation, along with Lee Li, hired by CEBR to work specifically on this report. CEBR also received support from IIUSA (Invest in USA) to complete the study.
For more information on the EB-5 study, contact Hodges at firstname.lastname@example.org.