Roundtable Weekly - July 26, 2019

House Passes Bipartisan Bill to Suspend Debt Ceiling, Increase Budget Caps 2 Years and End Sequestration; Senate to Vote on Package Next Week

The U.S. House of Representatives yesterday passed the Bipartisan Budget Act of 2019 (H.R. 3877) that would suspend the national debt ceiling until July 31, 2021; raise federal spending over the next two years; and avoid the threat of automatic, across-the-board "sequestration" budget cuts. The bill now goes to the Senate, which is expected to vote next week.  ( Section-by-Section summary of the bill, Budget Committee)

The U.S. House of Representatives yesterday passed the   Bipartisan Budget Act of 2019  (H.R. 3877) that would suspend the national debt ceiling until July 31, 2021; raise federal spending over the next two years; and avoid the threat of automatic, across-the-board "sequestration" budget cuts.  

  • The measure, which passed 284-149, caps recent negotiations between Democratic congressional leaders and the White House.  Earlier this month, Treasury Secretary Steven Mnuchin wrote to House Speaker Nancy Pelosi (D-CA) warning that if the debt ceiling was not raised, the U.S. could run out of cash to pay its bills in early September, resulting in potential default on the nation's financial obligations.  (Roundtable Weekly, July 12) 
  • The deal increases discretionary spending limits $324 billion over two years, replacing the prospect of strict sequestration caps imposed under the Budget Control Act of 2011.  The bill passed by the House permanently ends sequestration, which would impose a 10 percent cut on all programs if budget targets are not met.  (CQ, July 25) 
  • The fiscal package passed by the House would increase the budget cap for FY'20 defense programs by three percent, to $738 billion.  Funding for domestic programs would increase four percent, topping off at $632 billion. (Politico, July 25) 
  • The deal also lifts the debt limit through July 2021, meaning policymakers would not have to address the controversial issue during the 2020 election year. 
  • President Trump encouraged GOP lawmakers to endorse the legislation, tweeting yesterday, "House Republicans should support the TWO YEAR BUDGET AGREEMENT which greatly helps our Military and our Vets. I am totally with you!"  
  • Senate Majority Leader Mitch McConnell, (R-KY) this week stated he expects the Senate to pass the House bill next week and send it to President Trump for his signature. (Washington Post, July 25).  He added, "I make no apologies for this two-year caps deal. I think it's the best we could have done in a time of divided government. The alternatives were much worse." (Politico, July 23).   
  • When Congress returns from summer recess on September 9, policymakers will face a tight deadline to set federal appropriations for individual agencies and departments for FY'20.  Current FY'19 funding runs out on September 30, as does legislative authority for the National Flood Insurance and EB-5 investment programs.  
  • If Congress and President Trump cannot agree on how to allocate the $1.37 trillion in discretionary money allotted for the new fiscal year beginning October 1, a stopgap funding measure (or "Continuing Resolution") may be required.  
  • Last December and January, the lack of a government spending deal over security measures on the southern border led to a 35-day partial government shut down. (Roundtable Weekly, Feb. 1) 

The House recessed today for six weeks; the Senate is scheduled to leave August 2.  

Back to Top

DHS Issues New EB-5 Regulations

The Department of Homeland Security (DHS) on Wednesday published long-anticipated regulations governing key aspects of the EB-5 investment visa program. 

The  Department of Homeland Security (DHS) on Wednesday published   long-anticipated regulations governing key aspects of the EB-5 investment visa program.   

The new rule is scheduled to take effect on November 21, 2019 – assuming Congress reauthorizes EB-5 regional centers by September 30, and does not enact substantive reforms that supersede those program elements covered by DHS's action.  For a detailed description of the rule, see "Greenberg Traurig Alert: Final EB-5 Regulations."   The regulation includes:

  • Increases in Investment Amounts: 
    Investment amounts will increase to $900,000 for economic development projects in Targeted Employment Areas ("TEAs"), and to $1.8 million for non-TEA projects (from current levels of $500,000 and $1 million, respectively, which have not changed since the early 1990s).  The new amounts will adjust for inflation every five years back to 1990 dollars, with the first anticipated adjustment anticipated on October 1, 2024. 
  • TEA Definitions: 
    States no longer have a role in designating TEAs – those geographies that attract EB-5 capital at the lower investment threshold.  The new rules define "High Unemployment Area" TEAs –typically in urban locations – as the census tract where the project is located, plus any "directly adjacent" tracts to the project's tract.  The weighted average unemployment rate across these tracts must be 150% of the national average unemployment rate. 

    • "Rural Areas" (with one exception) are not limited to high unemployment characteristics for TEA qualification.  As with current law, generally any area outside the boundaries of a U.S. Census Bureau Metropolitan Statistical Area ("MSA") is a "Rural TEA."  However, an entire town or city outside an MSA – with a population of 20,000 or more people – qualifies for TEA status only if that municipality has an unemployment rate 150% of the national average.
    • A number of stakeholders urged DHS to consider a "commuting pattern" approach for urban environments to qualify as a TEA.  DHS said it "appreciated" comments providing substantial evidence that workers who live in economically distressed neighborhoods typically commute to downtown job centers where core urban development is located.  In the end, however, DHS dismissed a "commuting pattern" option for TEAs because the agency found it "too operationally burdensome" and "posed challenges" that the agency could not figure out.
    • DHS also considered – and rejected – TEA delineations tied to census tract designations with a track record of success in other analogous economic development programs, like the established New Market Tax Credit ("NMTC") program.
    • DHS’s new EB-5 rule does not comprehensively reform the program as urged by rural and urban stakeholders. (EB-5 coalition letter and  Roundtable Weekly, May 17, 2019) 

       

      Moreover, DHS failed to address the suggestion of rural and urban stakeholders to consider a recent Trump Administration Executive Order and assess the relationship between EB-5's economically distressed TEA census tracts and "Opportunity Zone" census tracts, designated by the U.S. Treasury in the spring of 2018. (Roundtable Weekly, March 8, 2019).

     
  • Grandfathering and Transition Rules: 
    As noted above, the rule is scheduled to take effect on November 21, 2019 – assuming Congressional EB-5 reauthorization by September 30 and no legislative reforms on matters within the rule's purview.

    • Investors who have already filed I-526 petitions, or who file by November 21, are subject to current program investment levels of $500,000 or $1 million.  They will not be required to post more money to meet DHS's new amounts.  The rule states: "Petitions filed before the effective date will be adjudicated under the regulations in place at the time of filing."  
    • Projects that do not complete intended EB-5 capital raises by November 21 will subscribe investors at different amounts.  For example, a project that currently qualifies as a TEA can attract investors at $500,000 until November 21.  Thereafter, if that project loses TEA status as per the new rule, it must attract investors at the $1.8 million level.  DHS rejected the concept for "project grandfathering," stating such an approach "would grant existing projects in affluent urban areas that have been marketed as TEAs an unfair competitive advantage against new projects in such areas, which will need to attract investors at the higher minimum investment amount."       

DHS's rule does not achieve comprehensive reform of the "regional center" program – an objective that a broad coalition of rural and urban groups have urged Congress to achieve by the program's legislative sunset date on September 30, 2019.  For example, the new regulation does not address EB-5 "integrity measures" that stakeholders have long requested to deter instances of fraud and maximize national security safeguards.  (Roundtable Weekly, May 17, 2019.)

 

Back to Top
Cannabis - Capital and Credit

Senate Committee Considers Protections for Banks Dealing With Legal Cannabis-Related Businesses; New Bill Would Allow CRBs to Buy Property Insurance

A Senate Banking Committee hearing on July 23 focused on a bipartisan bill that would protect lenders from federal liability when they provide accounts and other financial services to cannabis-related businesses (CRBs) deemed legal under state laws.  The bill would also protect certain real estate transactions involving legitimate CRBs. (Senate Banking Committee, " Challenges for Cannabis and Banking: Outside Perspectives ")

Senate Banking Chairman Mike Crapo (R-ID)  said at the hearing that “the case was made pretty strongly” that lawmakers needed to address confusion about whether banks and credit unions can provide accounts to marijuana businesses, as well as those ancillary businesses that service the growing industry.

  • Senate Banking Chairman Mike Crapo (R-ID) said at the hearing that "the case was made pretty strongly" that lawmakers needed to address confusion about whether banks and credit unions can provide accounts to marijuana businesses, as well as those ancillary businesses that service the growing industry. (BGov, July 23)  Chairman Crapo reportedly "stopped short of endorsing a legal fix for banks that want to serve cannabis businesses, warning that major concerns he has about financial crimes and access to the drug still need to be addressed." (Politico Morning Money, July 24) 
  • For real estate: the SAFE Banking Act would protect sellers and lessors of real estate, and other "service providers," by clarifying that proceeds from transactions with legitimate CRBs do not derive from unlawful activity – and thus do not provide a predicate for federal criminal money laundering. 
  • The Real Estate Roundtable on April 30 urged the Senate Banking Committee leadership to hold hearings on the SAFE Act.  Roundtable President and CEO Jeffrey DeBoer stated in the letter, "Without a bank account, dispensaries and other legal CRBs must operate on a cash basis.  Risks of crime thus increase and tax revenues to pay for infrastructure and other government services are potentially lost.  S. 1200 can significantly address these problems by providing protections for banks, real estate firms and their employees from punishment simply because they aim to serve businesses within … states that have legalized marijuana to varying degrees."  (Roundtable Policy Letter, April 30) 
  • Companion legislation in the House (H.R. 1595) was approved by the Financial Services Committee on March 27 by a 45-15 vote. A full House vote on the bill may occur after the upcoming summer recess. (Roundtable Weekly, April 26 and Forbes, July 23) 
  • At the July 23 Senate hearing, Banking Committee member Bob Menendez (D-NJ) discussed bipartisan legislation he introduced the day before – to ensure legal CRBs have access to comprehensive and affordable insurance coverage.    The Clarifying Law Around Insurance of Marijuana (CLAIM) Act would prohibit the federal government from taking any adverse action on an insurance policy held by an owner or operator of a CRB, or against real estate or equipment leased to a CRB, solely because the policy covers cannabis operations that a state deems legal. (Menendez news release, July 23) 

Following the hearing, Chairman Crapo said the Committee is acting on the SAFE Banking Act.  "We're looking at it to see if there's a solution to the various issues we're talking about."  (BGov, July 23) 

Back to Top