[T]he state budget for the Vermont EB-5 Regional Center has been zeroed out.
A provision in the 2018 budget bill removes the commerce agency’s spending authority for the program and effectively guts the center.
Lawmakers and officials with the Scott administration are reluctant to say the immigrant investor program has been shut down. Instead, they say the commerce agency must propose a plan for rebuilding the state EB-5 center.
Questions were raised last year about the Vermont EB-5 Regional Center’s oversight of the Jay Peak Resort projects when federal and state regulators charged Ariel Quiros and Bill Stenger, the developers of the resort, with 52 counts of securities fraud and the misuse of $200 million in immigrant investor monies.
The fraud allegedly began in 2008 and was perpetrated over an eight-year period, during which state officials were responsible for overseeing $600 million in EB-5 investor funded projects, including a massive redevelopment of the Jay Peak ski area, the Burke Mountain ski resort and a biomedical facility in the remote town of Newport.
The state-run regional EB-5 center, which was responsible for monitoring the projects, didn’t heed warnings in 2012 from Douglas Hulme, a former Jay Peak business partner who questioned the developers’ financial dealings. Instead of taking Hulme’s allegations seriously, state officials attacked his credibility. It wasn’t until 2014, when VTDigger published stories about allegations of fraud, that state officials began investigating.
Vermont’s top politicians promoted the Jay Peak projects to immigrant investors, and state officials rubber stamped permit approvals. Sen. Patrick Leahy, D-Vt., former Gov. Peter Shumlin and several high-level state officials helped to promote the Jay Peak projects to investors and defended the developers when questions were raised about allegations of fraud in 2014.
Shumlin accepted $24,000 in campaign donations from Jay Peak principals and appeared in a 2013 promotional video for Jay Peak that was distributed internationally. In the video, the governor told investors that the state regional center audited the projects. State officials did not begin to review the financials at Jay Peak until the Department of Financial Regulation launched an investigation of the developers in March 2015 — three years after allegations of fraud first surfaced.
The Vermont EB-5 Regional Center came under scrutiny after the Securities and Exchange Commission brought charges in April 2016 against Stenger, the former CEO, and Quiros, the former owner of Jay Peak. Last summer U.S. Citizenship and Immigration Services, which approves local EB-5 centers across the country, threatened to terminate the Vermont program and asked officials to resubmit an application for the center, showing evidence of adequate oversight of Jay Peak.
Meanwhile, the regional center has continued to operate. Michael Schirling, who was named commerce secretary earlier this year, insists that the center is in no danger of folding.
“The folks that are in it are the ones we’re here to support,” Schirling said. “However their projects unfold we hope they do well.”
There are three projects left in the program, according to Schirling. At one point, there were 15 projects in the regional center’s program, eight of which were affiliated with Jay Peak. Records show that all three remaining projects are in limbo.
Schirling, who was hired to lead the agency 12 weeks ago, was not aware of the Senate provision that eliminates the center’s budget.
“The Legislature needs to give us more time to unpack,” Schirling said. “I don’t know where we’re headed with all this. The deeds of the past are not ours.”
Schirling said after the legislative session his agency “will turn more of our collective focus to operations – including economic development and ensuring Vermont’s communities are vibrant.”
“Among the areas of focus will be work with our EB-5 partners,” he said.
Senate President Pro Tem Tim Ashe says the regional center continues to have a public relations problem, and senators can’t support investing more money in the program until that issue can be overcome.
“If someone Googles Vermont and EB-5, some of the stories they’re going to read aren’t going to be very favorable,” Ashe said. “The reason the money isn’t in the budget for ACCD [the Agency of Commerce and Community Development] this time is a worry is that we don’t want to be imagining that in our current state of play that a market and promotion is really ready for prime time in light of the hole we have to dig out of in terms of perception of the program.”
Ashe said he can’t predict whether the regional center will be shut down. “I can only say I don’t believe the Senate Appropriations Committee felt we should be pledging state dollars for marketing and promoting the program because we’re concerned about the damage that has been done.”
The Legislature, which typically holds joint oversight hearings when problems arise in state government, didn’t hold a single hearing about the role state officials played in allowing the alleged Jay Peak fraud go on for years. Nor did a single member of the Legislature call for an investigation into why the state continued to approve Jay Peak projects after questions were raised in 2012 about the way EB-5 money was being used for developments at the resort.
At a recent press conference, Gov. Phil Scott, a Republican, refused to say why he wouldn’t investigate the state’s role under his predecessor, Shumlin, a Democrat.
The Senate began defunding the regional center last year against the wishes of the outgoing Shumlin administration. In addition, Ashe led an effort to strengthen the regulatory framework for the program in state statute. The Legislature ultimately gave the Vermont Department of Financial Regulation statutory authority to oversee the securities and financial aspects of the program. DFR had began serving that function in 2015 under Shumlin’s direction.
Patricia Moulton, the former commerce secretary, opposed the statutory changes, Ashe said, “for fear that that would make the program seem like it had not been run very well.”
“Some of us said, yes that is a problem, we have a marketing problem across the country now and across the globe,” Ashe continued.
This legislative session, the newly elected Scott administration has pushed to keep the state EB-5 program going on life support with a $60,000 budget for staff to attend conferences.
Sen. Richie Westman, R-Lamoille, said the conference line item raised eyebrows in the appropriations committee.
“I don’t think the committee felt there was a focus,” Westman said. “I don’t think we thought there was any mission any more.”
In the past the regional center budget was about $235,000 a year and it was supposed to be supported by fees paid by developers. The Jay Peak developers, however, never paid fees to the state for the program, and it was largely subsidized by taxpayers.
Now, without support from the commerce agency, the regional center is hamstrung.
“Without any spending authority, I’m not sure functionally what they can do at this point, and I think it puts them in a position where they have no spending authority to do anything,” Westman said.
That doesn’t mean, however, that the program is dead — yet. The agency has a year to come back with a proposal for rejuvenating the regional center.
“I think clearly what our committee wanted was come back with a plan, give us a direction, tell us how you’re going to help businesses that need this capital,” Westman said.
