Friday, October 8, 2010

Putting It Together: Who Should Be Selling Green Cards?

Sometimes something dawns on us when we think about matters long enough and we make connections that were perhaps not so obvious at first. Now we an idea has come to us. Maybe it could really help the average New Yorker.

This is the way it started.

It kept gnawing at us: Why should this be something a private individual gets to do rather than its being the responsibility of the government? . . . Why should Bruce Ratner (and his partner Mikhail Prokhorov, a bloody Russian oligarch of all people!) get to go out and sell U.S. government-issued green cards to 498 Chinese millionaires and their families? . . . Why isn’t the issuance of green cards a government responsibility?

There is no question that Ratner is, indeed, selling the green cards. He’s selling them for an amount that we have calculated to be about $325,000 or more per recipient family! That means that for the total number of green cards going out to the members of the 498 families they are selling them to, Ratner and his Russian buddy Prokhorov get to pocket around $162 million or more. Though the Chinese are sometimes referred to as making an “investment” that sure ain’t the case: The Chinese give Ratner & Co.’s team some money ($538,000 per family) and, after some time (five years), the Chinese get less money ($500,000) back. There’s no interest either (in case you were wondering). Actually, as we wrote before, the Chinese will get even that reduced sum back only if they are lucky. Anyway, calculate your way through all this rigmarole and the value of what the Chinese have given up is about $325,000 or more per recipient family if they do get that reduced sum back.

Why should Ratner and a Russian oligarch hand out these green cards, deciding who gets them (and pocketing millions), rather than its being something the government does?*

(* Even if you consider the U.S. Immigration Service’s technical approval role, pro forma approvals of whatever the “Regional Center” cats drag in are meaningless to check privatization of the process. Also we will proceed to discuss in a bit, even the Service’s main criteria that immigrant deposits not be “illegally earned” can lead to unsatisfying murky ruminations about the extent to which the public good will really be considered.)

If the government were doing it, mightn’t it decide that the issuance of green cards should support public purposes and policies? Maybe, for instance, the government would decide that certain families were particularly worthy of receiving green cards and would be good families in certain specified ways to have visit the country? Maybe the government would look for a connection between the issuance of the green cards and the creation of jobs? That’s not something that is happening here: While nominally (and for PR purposes), the money Ratner and Prokhorov hope the Chinese will furnish will be attributed to the financing of the Brooklyn Nets basketball arena they have under construction, ESDC, the state agency responsible for that project, has confirmed that the EB-5 money “will not create any new jobs beyond those already forecast.” Actually there is a question as to whether the money goes to the arena already under construction; whether it goes to the arena plus the railyards Ratner is under contractual obligation to furnish to the MTA; or whether it goes just to those railyards. This issue is apparently being intentionally obfuscated to maximize risk for the Chinese. (There is also the issue that the Atlantic Yards project, crafted at every turn to put the developer’s interest ahead of the public’s, is simply a net public detriment in all respects.)

Sure, the government might be directed by a public purpose if it was the one handing out green cards but when the task is left instead to Ratner and a Russian oligarch what do you think they are going to do? Aren’t these guys, after all, motivated just by the profit they are pocketing and therefore choosing their path accordingly? Consider: Bruce and Mikhail could be selling their green cards to citizens of countries all around the world. Do you think the fact that they are going to China to sell these green cards is because that is where they can sell the cards at the highest price? It would seem so. . .

. . . Green cards are a scarce resource.* The total annual number that can be issued is strictly limited by U.S. Immigration law and it is limited in a way where the largest countries in the world like China and India (populations 1.34 and 1.19 billion respectively) are put at a disadvantage with a per-country quota system that says that no country can send more than 7% of the total worldwide immigration annually. That translates into 25,620 for each country no matter what the population. Meanwhile, a much smaller country like Nauru with a population of only 13,918 (although densely populated) has green card availability to send the same number of people. No wonder the Chinese are expected to be the highest bidders and Bruce and Mikhail are headed off there. (Were any of us thinking that Ratner was picking China because he thought that Norman Oder would be less likely to catch up with his antics if he had to translate fraudulent sales claims written in Chinese, or that he might be found out too fast in India because so many people there speak English?)

(* As we will discuss further on, the number of EB-5 green cards that can be issued is also a capped amount, a further factor in making them a scarce resource)

It is not that we are against Chinese or are against providing them with green cards. Quite the contrary. New York in particular has a history of thriving based on the industry of hard working and clever immigrants. But if scarce green cards for the Chinese go the way that Ratner and Prokhorov direct it means that more industrious Chinese families who have more to offer the U.S. and its economy won’t get green cards. Ratner’s green cards-for-cash program is actually the low-rent version of the program. The EB-5 program requires that immigrant families invest $1 million in the U.S. except that if, as is being done with the Ratner/Prokhorov setup, the money is run through an EB-5 Regional Center, the amount they are required to put up drops down to half that, only $500,000.

Presumably, the reason for scaling back the immigrant cash deposit requirements for the Regional Center offerings is that Regional Centers can, through their control and prepackaging, better ensure that the American public is properly benefitted. That is likely a regrettable assumption if you look at the credentials of the man at the head of the Regional Center involved in the Ratner/Prokhorov deal: In that regard you probably want to read more about Mr. Paul Levinsohn. The truth is that the Chinese who don’t have access to more profitable deals when they want to invest in the U.S. and whose best thought is to offer a highest-bidder price to Ratner/Prokhorov are those Chinese who likely have less to offer the U.S. in return for their green cards than those other Chinese to whom green cards could be offered as truly bona fide investors.

We Segue to MTA Cutbacks

As indicated earlier, it is our Noticing New York wont to put things together and make connections. That, for example, is something we did when the MTA started raising its fares and cutting back on its service. We pointed out that these cutbacks and fare increases might not be so necessary but for the fact that MTA officials were giving away the store to Atlantic Yards. (See: Friday, December 18, 2009, Big Picture Questions: Does MTA Chairman Jay Walder Comprehend Atlantic Yards Link to MTA Cutbacks?)

Yesterday’s news was that the MTA’s board voted to hike the cost of a monthly monthly MetroCard to $104 from $89. That’s a 16.9% increase. The MTA hiked other fares as well. It was the third round of increases since 2008 and the increase was after and despite the service cutbacks it enacted just months ago. Even worse, Andrew M. Saul, the board’s vice chairman said the fare increases approved on Thursday are “just the beginning.”

Tunnel Vision Cutbacks

To provide additional perspective, other headline news yesterday concerned New Jersey’s Governor Chris Christie scrapping the under-the-Hudson ARC (Access to the Region’s Core) tunnel that would shorten the average new Jersey commuters trip into New York by 40 minutes and for which work was already “under way and $3 billion of federal financing had already been arranged — more money than had been committed to any other transit project in America” because he said New Jersey could not afford an estimated $5 billion the state might have to pay in cost overruns on the project originally priced at $8.7 billion.

Christie’s estimate of an extra $5 billion exposure might have been exaggerated in support of justifying his announcement (overruns might actually be as low as $2.5 billion) and it should be noted that, since this project (which is entirely for New Jersey Transit’s own trains) is also being paid for with another $3 billion committed from the Port Authority (coming from its tolls), New Jersey wasn’t paying for that big a portion of its own project. Conceivably, Christie’s decision could have been prompted and backed by the highway lobby, but if Christie thinks he is going to get returned for local roads any of the $6 billion he is giving up from the federal government and the Port Authority, he is likely mistaken. What’s in store for New Jersey motorists is probably just greater increases in congestion.

Even though aspects of the ARC tunnel such as its poorly designed connection to Penn Station can be criticized, the ARC tunnel is a mass transit project that represents the creation of the kind of critical big-scale regional connections (like the Erie Canal) that have been an essential factor in the growth of our metropolis. The Times also writes about how the project was supposed to “provide jobs for 6,000 construction workers” and “raise property values for suburban homeowners.” In other words the ARC tunnel is the kind of mass transit infrastructure project that equitably confers benefit widely and stimulates development throughout the territory.

And the Tunnel Vision Associated With a Lack of Cutbacks

So what can we afford these days?

On one hand we have Christie portraying himself as courageous (whether he is making a blundering mistake or not*), deciding that New Jersey cannot afford the few billion it will cost to generally benefit everyone and stimulate development by increasing mass transit. But, conversely, on the other side of the river in New York, we have Governor Patterson and Mayor Bloomberg acting very differently. They without compunction continue to support the expenditure of $2-$3 billion in subsidies (with nowhere near the same level of matching funds from the Feds and none from the Port Authority), subsidies that are designed to confer only private benefit on Ratner and Prokhorov as the developers of Atlantic Yards. Rather than stimulating development, the subsidization of Atlantic Yards merely usurps the development opportunities of others. Rather than promoting development by building up the transit infrastructure like ARC, Atlantic Yards will additionally overtax New York’s existing mass transit thereby counterproductively dampening development impetus further.

(* latest reports are that Christie may be reconsidering.)

If the MTA Just Undertook Some Creative Financing of Its Own

So what can we afford? Here is the not-so-crazy idea we came up with when we put two and two together. Maybe we could afford a lot more if the government was the one out there handing out green cards to the high bidders. Did the MTA think they had cleverly accomplished something and squared away part of their capital budget needs when, in connection with the very low price Ratner is paying to acquire the Vanderbilt railyards from them for Atlantic Yards, they contractually obligated Mr. Ratner to build the replacement (albeit smaller and less adequate) railyard they were then going to need? By going to the Chinese Ratner isn’t the one paying to close that budget gap anymore; he’s simply passing his contractual obligation along to the Chinese. Gosh, Golly and Jumping Jehosaphat: The MTA could have gone to the Chinese directly, eliminating the middle man!

Let’s unprivatize the selling of green cards and put some money back in the government’s pocket by taking this function back! It could mean really big bucks.

Among other things the MTA would like to fill the hole created last December when the state removed $143 million of its transit funding out of the state budget. $143 million? If the MTA were selling green cards rather than Ratner and Prokhorov, then the $162 million or so that they are getting for equipping 498 families with green cards could easily fill that gap.

But wait, why stop there? The MTA has miles and miles of track and railyards to fix up, a whole multitude of worthy capital projects to tackle and under the EB-5 program there are 10,000 EB-5 visas available to qualified aliens each year with 5,000 of those annual visas for aliens whose money comes in through the “Regional Centers.” If Ratner and Prokhorov could get to sell 498 of those visas, why shouldn’t the MTA as a government agency with its truly worthy projects that are true fuel for the economy get to sell at least maybe 2,000 of those visas? That would bring in a cool $648 million. The MTA’s current deficit is less: $400 million. (It’s entire subsided operating budget is $7.2 billion with the fare increases intended to generate 7.5 percent more revenue.) If all the MTA wanted to do was hold the money for a while as an investment, 2000 visas would bring in $1 billion. Maybe the MTA would even agree to pay some sort of nominal interest on that amount.

Tripping Along

Alas, such opportunities are not being seized by the government for the benefit of the public. Instead, in what Norman Oder of Atlantic Yards Report has christened an “abdication of government” we find that government officials like Brooklyn Borough President Marty Markowitz and the Empire State Development Corporation head Peter Davidson simply assisting Ratner and Prokhorov arranging travel to willingly “flack Ratner's project in China” without requiring identification of any public purpose in the sale of the green cards. It certainly raises serious ethical issues about proper governance. Mr. Markowitz has since canceled his trip though reportedly there is a city conflict of interest board ruling saying he could go. (We haven’t seen the ruling but would love to see exactly what the board reasoned through to such a conclusion.)

Why would our public officials want to make such trips?* The answer could be as simple as that public officials just like to travel. In yet more of the headline news informing us yesterday the Times reported that former New York State Comptroller Alan Hevesi, pleading guilty taking kickbacks for approving a $250 million pension investment, admitted that the $1 million in kickbacks he accepted, “included hotel and travel accommodations for himself and his family during trips to Israel and Italy.” More specifically, according to two NPR reports, “Hevesi and his family got $75,000 worth of luxury travel and gifts”and “The trips involved first-class airfare for Hevesi and his family, luxury hotel suites, a helicopter tour, a car with a driver and a security detail.”

(*Having just come from seeing Inside Job the documentary dissecting the recent U.S. financial crisis, we note that its prologue informs you that one of the last roles performed by Icelandic government officials before that country’s major economic crisis was to travel abroad shilling for the banks that ushered in the their economy’s ruin.)

(Subsequent to this post going up Mr. Oder offered another likely explanation for why government officials would go on such trips: "Agency Capture." Actually, he offers two possible explanations in that post. The other, he suggests is a "hostage situation" something we have also written about. Click here and then you might want to look, in particular, for the heading "Beekman Blackmail." When it comes to the Beekman, Ratner blackmailed the unions on jobs and the local community board for more subsidy.)

Be Careful What You Import

Here is one final thought. Mikhail Prokhorov is also a foreigner. We were wondering whether he might be eligible to be a beneficiary of the EB-5 program. He has, after all, also given money to Ratner to put into Atlantic Yards. Researching the EB-5 visa program we read that one of its most important requirements of the program is that it must be documented that the money that qualifies the applicant immigrant for visa status was legally earned. . . .

. . . . And how did Prokhorov get his money?

Investigative reporter Matt Taibbi, who has an article coming out on the subject (and previously wrote about Goldman Sachs), spoke on a Fox Business interview show with Don Imus about how peculiar it is that the press is not paying more attention to the extremely controversial way in which Prokhorov acquired his wealth. Here, via Atlantic Yards Report, is what Mr. Taibbi said:
It's really funny--I lived in Russia for ten years, and one of the things I covered way back when was this scandal called 'loans for shares.

They privatized the jewels of Soviet industry into the hands of a few gangsters, basically, and I remember covering that story very well," he said, "and I remember how angry everybody was, that all this stuff that was public property was handed over to these guys who were friends of the president."

And then, ten, 15 years later, I come back to America and find out that one of them has become owner of the New Jersey Nets," Taibbi continued. "Prokhovov was part of this company called Norilsk Nickel. They basically won a rigged auction for one of the world's largest metals companies... Yet this guy is a hero here in the States because he's tall and he says some funny stuff on TV."
So did Prohorov acquire his wealth legally such that he would qualify for the green cards he is now selling? Taibbi, speaking about the fact that the NBA approved him as an owner, made the point that it all comes down to what the rules are that have to be observed (emphasis supplied):
They said they vetted him thoroughly. I can't speak for David Stern, [NBA Commissioner] but this guy, for Russians, he's sort of a symbol of this whole era when there were absolutely no rules and public wealth was just turned over to a bunch of insiders. It's unbelievable to me that he's being celebrated as this great guy.
So by that measure Prokhorov did make his money legally because there were no rules to break. But you know it can be interesting what gets imported along with the immigrants entering the country. Based on what we have seen of the handling of this EB-5 program we would suggest that Prokhorov (and his buddy Ratner) right now, here in the U.S., are very much a symbol of an era when there are absolutely no rules and public wealth is just being turned over to a bunch of insiders. Now that we’ve imported Russian practices to America it’s all happening again.

(Below is the Matt Taibbi Fox Business interview video.)

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