Lawmakers might explore ways to broaden access to foreign investment through the federal EB-5 Immigrant Investor program.
The possibility is being discussed in the House Commerce Committee. Rep. Bill Botzow, D-Bennington, and chair of the committee, said he’s heard from some businesses who find the requirements too burdensome to justify borrowing relatively small amounts.
The EB-5 program has been a centerpiece of Vermont’s economic development strategy since then-Gov. Howard Dean established the Vermont EB-5 Regional Center in 1997.
The EB-5 program provides a conditional green card to foreigners who invest at least $500,000 in a qualified American firm. Vermont’s the only state-owned regional center that wholly administers the federal program without contracting to an outside firm.
But up-front costs to get into the EB-5 program run into the hundreds of thousands of dollars, according to regional center director Brent Raymond. He says an “unwritten rule” is that EB-5 is best for businesses looking to borrow at least $10 million in capital.
Botzow finds that’s more than many Vermont businesses need to grow. “The Vermont pipeline often starts with companies that only need a million dollars,” Botzow said.
David Bradbury, president of the Vermont Center for Emerging Technologies, says many entrepreneurs and small businesses he works with could scale up their companies with $2 million to $5 million in capital.
“I think some small business and startups have been frustrated that the program isn’t really a good fit for their type of company,” Bradbury said.
To date, EB-5 investments in Vermont and around the country have been dominated by real estate and hotel or resort developments.
Botzow suggested that, under a different structure, advanced manufacturing might be one of several new industries to tap the foreign capital.
He wants to know if it’s feasible for a small group of businesses to pool their resources to apply for EB-5 eligibility. If approved by the U.S. Citizenship and Immigration Services, which has final say over who can borrow from EB-5 investors, the businesses would share the investment dollars.
Bradbury mentioned a risk-pool concept that’s come up before. “One idea that has floated around for a number of years (is) trying to use EB-5 money to capitalize a venture capital fund,” he said.
Raymond said anything that would open up the EB-5 program to more Vermont businesses “would be a plus.” But there’s a high bar to reach, he says.
EB-5 approval in Vermont is first subject to state scrutiny. As a government-run regional center, Raymond says there’s extra pressure to only be associated with successful ventures. Any blemishes on the state’s record could discourage prospective investors from choosing Vermont projects among hundreds of competing opportunities around the country.
To keep its record clean, the the regional center canceled a memorandum of understanding in March with a development company called DreamLife Retirement Resorts, claiming the firm had made “material misrepresentations.”
Another project intended for the EB-5 program fell through in September, though before it was officially engaged with the state regional center. Bill Stenger, Vermont’s most prolific developer to avail himself of EB-5 funds with a set of Northeast Kingdom projects nearing $500 million in value, said the plan to bring German window manufacturer Menck to Newport could not guarantee the quick level of job creation required by the program.
Once a project wins state and USCIS approval, it can solicit and finalize investments. The federal agency has recently stepped up its own analysis of EB-5 projects, following controversies ranging from allegations of political favoritism in Washington, D.C., to a Texas-based Ponzi scheme.
Botzow said the bar would have to be even higher for a business pool, and it’s not clear whether those resources currently exist in the Agency of Commerce and Community Development, where the regional center resides. Two staffers there split their time between EB-5 and other international trade opportunities.
“This isn’t something one could just do,” Botzow said. Botzow thinks the idea requires careful consideration of both the opportunities and potential rewards. He plans to bring the idea up for further discussion with the House Commerce Committee to determine if it’s a possibility they’d like to explore further.
Whether it’s broader access to EB-5 investment or another funding source to help small businesses scale up, Bradbury thinks more options to borrow a few million dollars at a time would be helpful.
Correction: An earlier version of this story inaccurately portrayed the amount of up-front costs involved in starting an EB-5 project.
