Commentary by John McClaughry
On June 15 some 120 people from Vermont’s Northeast Kingdom came together for a session at Lake Region High School on “building action to advance the health and prosperity of NEK communities while maintaining their character and protecting the working landscape that surrounds them.” The event was co-sponsored by the Vermont Council on Rural Development and the Northeastern Vermont Development Association.
Long a lagging corner of Vermont economically, the three-county Kingdom (so labeled by Gov. George Aiken) seems improbably poised for an economic boom. Unlike the Klondike (gold, 1898) or North Dakota (oil, 2010), the coming boom is made possible by something far better than natural resources: free money.
The source of the Kingdom’s free money avalanche is, happily, not the U.S. taxpayer. It is the EB-5 immigration visa program. To put it bluntly, the U.S. government sells to well-heeled foreigners the right to legally emigrate with their families into America, in return for an equity investment of $500,000 (and up) in a government-approved development project.
The immigrants are not required to play any active part in managing their investment. In fact, many of the immigrants will never actually set foot in the projects in which they are part owners. What is important is that their checks clear, after which they can live anywhere in the U.S. that suits their fancy.
So far there are 234 EB-5 developments underway. The Northeast Kingdom Economic Development Initiative has invariably been ranked among the top three or four such investment opportunities. That is largely due to the imagination and managerial and political skills of Bill Stenger, the CEO of Jay Peak Resort.
Stenger, who was the keynote speaker for the Lake Region conference, has been successful in refashioning and marketing Jay Peak as a four-season destination. He has already built a well-patronized water park and has another $170 million in ski area improvements underway.
That’s just the beginning. With as much as $500 million becoming available through the EB-5 program, the Stenger-led initiative has multiplied. It now includes an expansion of the Burke Mountain ski area ($108 million, 1,500-room hotel); a South Korean pharmaceutical facility plus a German window manufacturing plant ($104 million), a marina and conference center on Lake Memphremagog ($100 million), and a downtown business building, all in Newport; and improvements and a training facility at the regional airport in Coventry ($20 million).
Throughout the emergence of this project Stenger has worked closely with NVDA, the state and the affected towns to make sure they can accommodate the resulting growth. He has enjoyed the backing of Sen. Patrick Leahy, who as Judiciary Committee chairman has become the godfather of the EB-5 program, and other political leaders.
Can this initiative be replicated elsewhere in Vermont? Possibly so, but there are some key facts that need to be recognized.
The first is that “free money” — provided by patient equity investors — makes debt-free projects possible. Stenger readily admits that no matter how dazzling a plan he might put together, it could never be conventionally financed through borrowing.
The second is that the EB-5 investors, unlike ordinary venture capitalists, are not primarily looking for return on investment. What they are looking for is hassle-free legal residence in the U.S., a more attractive option than remaining in their home countries. They are willing and able to gamble $500,000 on an investment, because even if it goes belly up they will have achieved their main objective.
Third, even though the investors’ primary objective is legal residence, not financial returns, they will select the best managed and most politically favored initiatives among the 234 available.
Fourth, any project of this sort requires a multitalented organizer and promoter, who can put all the pieces together — business, finance, marketing, regulation, and personal and political credibility. Bill Stengers are hard to find.
Fifth, government regulation is unavoidable, but it must be reasonable, clear, fair, swift, cooperative and pro-growth.
Finally, the support and enthusiasm of the local population are essential to build the momentum and excitement that make great endeavors imaginable, and doable.
John McClaughry is vice president of the Ethan Allen Institute.