How Immigrants with Money Can Help Cities Create More Jobs
In the wake of the recession, there's growing interest in a federal program offering visas to immigrants who invest in local economies.
New York, San Francisco and other traditional immigrant destination cities have long understood that while immigrants seek out American cities as proverbial lands of opportunity, these newcomers also drive economic growth. A recent influx of immigrants is also helping to stabilize declining older industrial cities such as Detroit. Cleveland, Syracuse and Toledo that have been losing residents for decades. As smaller cities across the U.S. are realizing this potential economic impact, many are enacting local initiatives to help draw more immigrants to their communities.
The federal EB-5 Immigrant Investor Program is another tool cities could use to attract immigrants. With support from the Surdna, Garfield and Boston foundations, the Initiative for a Competitive Inner City (ICIC) has spent the past year analyzing the EB-5 program and its potential to create economic opportunity in urban areas. Our research identified 178 EB-5 projects across the United States, including many in the Rust Belt.
The federal government established the EB-5 program in 1990 to improve economic conditions, especially in high-poverty and high-unemployment areas, by attracting foreign capital to support investments that create local jobs. The EB-5 program is administered by U.S. Citizenship and Immigration Services. Each year, the State Department is authorized to allocate 10,000 conditional permanent-residency visas to eligible EB-5 foreign investors. Since its inception, EB-5 has attracted investors from numerous countries, but it is increasingly dominated by investors from China. In 2013, over 80 percent of EB-5 visas were issued to Chinese nationals.
An EB-5 participant must make a significant investment in a business that creates at least 10 full-time jobs. The minimum investment requirement for EB-5 is set at $1 million, or $500,000 if the business is located in a targeted employment area (a rural area or one with an unemployment rate of at least 150 percent of the national average).
Interest in EB-5 as a local economic-development tool was relatively limited until the recent recession and subsequent contraction of more-traditional sources of capital, but that interest has skyrocketed since then. Last year the government received more than 6,300 applications for the EB-5 program, compared to 255 in 2002.
Today, there are approximately 440 EB-5 regional centers operating across the country. Every regional center is required to define the geography that it plans to serve. A regional center's approved area of operation can span across state borders, and our analysis found that 60 of them operate in more than one state. Every state has at least one regional center, and more than 110 operate within Rust Belt states.
The Milwaukee Regional Center is one of the oldest active ones. Established in 2007 and administered by the Metropolitan Milwaukee Association of Commerce, it has used EB-5 investments to fund 17 projects. FirstPathway Partners is one of several organizations that develop EB-5 projects through the Milwaukee center. FirstPathway has raised over $120 million in EB5 funds and has a few projects underway, including an innovative Global Water Center supporting Milwaukee's competitive advantage as a leader in freshwater research and technology. This building currently houses 25 water-related organizations, including academic programs, multinational corporations and startup businesses.
Although less common, entrepreneurs also use EB-5 direct investments to grow new businesses. In Indianapolis, for example, E3 Investment Group has created E3 Cargo Trucking. Each investor puts $500,000 into the partnership, which finances the purchase and operation of trucks. To date the company has attracted six investors from China, Japan and Vietnam. Develop Indy, a unit within the Indianapolis Chamber of Commerce, helped to identify an appropriate location for the company's initial site and Marion County's local workforce development organization will help identify local employees and provide workforce training if needed.
No one would suggest that the EB-5 program doesn't have its limitations. It has suffered from a few high-profile cases of fraud, and it is bureaucratically complex: Projects that use EB-5 funding can take many months or even years to gain approval from the federal government. And since it is capped at 10,000 visas per year, it is also a relatively small program in terms of attracting immigrants. Even with those limitations, however, EB-5 clearly has the potential to support economic development in and attract immigrant investors to cities looking for another way to grow jobs.