Massachusetts’ clever immigration reform workaround

April 14, 2014, 6:46 PM UTC
Massachusetts Governor Deval Patrick holds a press briefing in Boston in January.

FORTUNE — In America’s battle to keep the foreign entrepreneurs it trains, Massachusetts Governor Deval Patrick has thrown down a massive gauntlet.

Announcing a broad economic growth package last week, Deval introduced what he’s dubbed the Global Entrepreneur in Residence (GER) Program. The proposal: Foreign students who attended colleges and universities in Massachusetts and are interested in staying in the state as entrepreneurs can apply to enroll in the GER program that will be administered by the Massachusetts Tech Collaborative, an independent state agency aimed at developing technology in Massachusetts. Mass Tech will then place selected individuals at participating public and private universities in the state, where they will work part-time and apply for visas that will be sponsored by their new employers.

The GER program is one way Massachusetts can “accelerate [its] job and wealth creation,” Patrick, a Democrat, said in a statement. Greg Bialecki, Patrick’s secretary of housing and economic development, told Fortune on Friday that “the drive behind this idea was international students who’ve come to Massachusetts; they’ve spent their school years here and want to stay here.” At present, there are 46,000 foreign college students enrolled at institutions in Massachusetts, he says.

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Patrick’s plan is simple enough, but addresses a critical problem facing the startup community and the economy as a whole: how to get foreign-born, U.S.-educated entrepreneurs to stay in the country.

Under current immigration law, foreign students can attend U.S. colleges and universities with a student visa, but once they graduate, they must find an employer to sponsor them for an H-1B visa designated for skilled foreign workers to stay in the country. The H1-B system disfavors entrepreneurs because, unlike the Microsofts and Facebooks of the world, startups typically don’t have an army of lawyers specially trained in immigration law. And the visa application requires a distinction between the employer and the employee; at startups, those are often one and the same.

The visa application also requires that the employer prove that the sponsored employee is receiving the industry’s prevailing wage, but oftentimes a startup founder is not paying himself anything and is instead working for a stake in future earnings, says Neil Ruiz, an associate fellow at the Brookings Institution’s Metropolitan Policy Program.

These factors are made all the more complicated by the limited number of H-1B visas available to private employers and the once-a-year application process. The United States Citizenship and Immigration Services announced on April 7 that it had received enough H-1B petitions to fill its 85,000 visa spots just five business days after it started accepting 2014 applications.

Patrick’s proposal — which will likely gain support from the state’s Democrat-controlled Senate and House — is aimed at making the visa process easier for entrepreneurs by getting around the H-1B cap through a loophole in the system. Institutions of higher learning are exempt from the H-1B visa cap and can apply for visas for their employees at any point throughout the year, which means foreign graduates who are employed by higher-ed institutions through Massachusetts’s GER program would, in theory, have a much better chance of securing a visa then they would if they applied for one as part of the private sector.

The one question the GER program raises is whether a part-time employee fits the USCIS’s definition of being affiliated with a university, which must be met in order for foreign grads to apply for cap-exempt H-1B visas, says lawyer David Grunblatt, head of the immigration and nationality group at law firm Proskauer Rose. Patrick’s idea will “force the USCIS to put its money where its mouth is,” says Grunblatt. “It’s given a lot of lip service lately to being pro-entrepreneur, but when you dig down into the regulation, it’s not as easy as it sounds.” An official from the Department of Homeland Security, which oversees the USCIS, told Fortune on Tuesday that there’s no requirement for an individual seeking a visa to be a fulltime employee in order to receive a cap-exempt H-1B from a university, though the petition must also meet the standards of the Labor Department’s labor certification, which ensures that immigrant workers are not displacing U.S. workers. The White House declined to comment.

Secretary Bialecki, for his part, insists that the GER program fits squarely within existing immigration law. And he says that universities have expressed interest in participating, which is vital to the program’s success. He said the University of Massachusetts is the only interested institution he could name publicly.

On the surface, there doesn’t appear to be a clear incentive for universities to take part in the program, since, according to Bialecki, they will have no rights to the technology the entrepreneurs in residence develop during their free time.

But the entrepreneurs in residence that the UMass system plans to hire part-time will contribute to the university by spreading “entrepreneurial knowledge and spirit to [its] students and faculty,” says Julie Chen, vice provost of research at UMass’s Lowell campus. She said the entrepreneurs’ primary responsibly will be to mentor students who are interested in starting their own companies, though entrepreneurs with high-tech backgrounds may be asked to take on tutoring roles as well. The program also serves as a way for the university to retain the talent that it helped foster. “To educate a huge number of foreign students and then send them away seems like a huge waste,” Chen says.

Patrick has requested $3 million from the state to start the program, according to Bialecki. Chen expects that the state would provide funding to launch the program, and then a university would look for sources of sustainable funding from donors. “The same sort of folks who support incubators and business plan competitions,” she says.

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In addition to addressing the exodus of entrepreneurial talent from the U.S., Patrick’s proposal fills a gap left by a lack of movement on immigration reform at the federal level. An immigration reform bill that passed the Senate in June is now stalled in the House. The bill includes a provision that would create a new class of startup visa for foreign entrepreneurs and would increase the number of H-1B visas available to immigrants with advanced degrees.

Federal immigration reform, of course, would have a much larger impact on the problem and could free entrepreneurs up to focus on their ventures. Patrick’s proposal ties these workers to colleges and universities indefinitely. “It’s sort of a gilded cage,” says Grunblatt. “It works fine as long as you are associated with that particular entity. However, if you want to move to another business, you have to go back into the lottery.”