A little-known program designed to create jobs in high unemployment areas is being abused by business developers and state officials in order to fund business ventures. Meanwhile, the areas that are supposed to be receiving assistance are left out in the cold.
Through a program, called EB-5, foreign investors are able to obtain United States permanent resident status by investing money into new businesses. The program allows financing to be obtained at a much lower cost than receiving financing from a traditional lender or a private investor. The goal of EB-5 is to create jobs in areas with high unemployment.
However, much of the immigrant investment money is being used to fund expensive neighborhoods and business developments due to a loophole within the program, and poorer areas are being forgotten about.
On September 30th, a key component of the EB-5 program is set to expire. While congress is preparing to reauthorize the program, some lawmakers are concerned with how the program is being utilized. Many believe that the program has been abused in order to benefit wealthy areas instead of help where it is needed.
Under the program, areas with high rates of unemployment are given a special status. But some locations within these designated areas are actually very well off. For example, in 2013 New York state officials established a district that contains both the Manhattanville public housing projects in west Harlem and the highly affluent and prosperous neighborhood of Hudson Yards. The district had an unemployment rate of 18.1% in 2012. By being in the same district, Hudson Yards is able to utilize funding that would ideally assist the housing projects.
Some of the largest modern skyscrapers in the city have been built in Hudson Yards, some of which used the program for financing.
With the current EB-5 program, money is used to finance highly priced condominiums and expensive office towers while poorer communities are unable to receive much needed assistance. A recent paper from two NYU professors showed that 25 large business startups have used the EB-5 program to their advantage in order to raise more than $4.5 billion in financing. Of these 25 business ventures, 22 were urban real-estate projects.
The urban developers are able to pull this off by placing their developments in areas designated as a “Targeted Employment Areas”. A Targeted Employment Area refers to any area where the unemployment rate is more than 150% of the national average. Having such status allows foreign investors to obtain a United States green card by investing only $500,000. In areas that aren’t Targeted Employment Areas, foreign investors must invest $1 million in order to achieve the same result. By focusing on Targeted Employment Areas, developers are able to attract many more foreign investors.
Developers aren’t even the only ones abusing the EB-5 program.
State officials have been “gerrymandering” districts in order for certain affluent areas to qualify as having a high rate of unemployment.
This was the case in New York, when it placed Hudson Yards in the same district as the Manhattan housing projects. State governments are hungry for economic development, and since they have little interest in federal matters, they are more than willing to take advantage of this program.
However, many people are defending this practice, saying that it creates jobs and benefits everyone in the long run. Supporters of the EB-5 program claim that it is a fantastic development tool and that creating jobs at no cost to the government is a good thing. Many lawmakers want to leave the program as it currently stands in order to avoid tampering with what they believe has been a success.
Overall, the issue is sure to cause a large debate in congress as to whether or not the program should be allowed to continue the way it is.