Commonwealth of the Northern Mariana Islands: Implementation of Federal Minimum Wage and Immigration Laws
Published: 2017-05-18T00:00:00

Fast Facts:
The labor market of the Commonwealth of the Northern Mariana Islands is growing and continues to largely rely on foreign workers. A 2007 law requires CNMI to eventually raise its minimum wage to the federal level ($7.25). About 62% of workers were affected by the 2016 wage hike to $6.55.
In 2015, foreign workers made up more than half of CNMI's workforce. The Department of Homeland Security aims to eliminate all work permits (CW-1 permits) that allow foreign nationals to work in CNMI by the end of 2019. However, our economic analysis estimated that without foreign workers, CNMI's 2015 gross domestic product would have been reduced by 26-62%.

Highlights:
section_title: Why GAO Did This Study
paragraphs: A 2007 law required the minimum wage in the CNMI to rise incrementally to the federal level in a series of scheduled increases. GAO has been periodically required to report on the economic impact of the minimum wage increases in the territory. A 2008 law established federal control of CNMI immigration. It required the U.S. Department of Homeland Security (DHS) to create a transitional work permit program for foreign workers in the CNMI and to decrease the number of permits issued annually, and presently requires that DHS reduce them to zero by December 31, 2019. To implement this aspect of the law, in 2011, DHS created a CW-1 permit program for foreign workers.
In addition to the above statutory provisions, GAO was asked to review the implementation of federal immigration laws in the CNMI. Accordingly, this report examines (1) changes in the CNMI's labor market since the start of the federally mandated minimum wage increases, (2) the potential economic impact of reducing the number of foreign workers to zero, and (3) federal and CNMI efforts to address labor force challenges. GAO reviewed U.S. laws and regulations; analyzed government data; and conducted fieldwork in Saipan, Tinian, and Rota, CNMI. During fieldwork, GAO conducted semistructured interviews and discussion groups with businesses, CW-1 workers, U.S. workers, and current and former job training participants.
section_title: What GAO Found
paragraphs: The Commonwealth of the Northern Mariana Islands' (CNMI) labor market has begun to grow after years of decline, while continuing to rely on foreign workers. By 2015, the number of employed CNMI workers was about 8 percent higher than in 2013, and inflation-adjusted average earnings had risen by 18 percent from 2007 levels. By 2016, about 62 percent of CNMI workers were directly affected by CNMI's minimum wage hike to $6.55 per hour. In 2015, foreign workers, who totaled 12,784, made up more than half of the CNMI workforce and filled 80 percent of all hospitality and construction jobs, according to GAO's analysis of CNMI tax data.
If all workers with CNMI-Only transitional worker (CW-1) permits, or 45 percent of total workers in 2015, were removed from the CNMI's labor market, GAO projects a 26 to 62 percent reduction in CNMI's 2015 gross domestic product (GDP)—the most recent GDP available. Demand for foreign workers in the CNMI exceeded the available number of CW-1 permits in 2016—many approved for workers from China and workers in construction occupations. The construction of a new casino in Saipan is a key factor in this demand (see photos taken both before and during construction in 2016). Meanwhile, by 2019, plans for additional hotels, casinos, and other projects estimate needing thousands of new employees. When the CW-1 permit program ends in 2019, available data show that the unemployed domestic workforce, estimated at 2,386 in 2016, will be well below the CNMI's demand for labor. To meet this demand, CNMI employers may need to recruit U.S.-eligible workers from the U.S. states, U.S. territories, and the freely associated states (the Federated States of Micronesia, Republic of the Marshall Islands, and Republic of Palau).
Federal and CNMI efforts to address labor force challenges include (1) job training programs offered by Northern Marianas College, Northern Marianas Trades Institute, and the CNMI's Public School System; (2) employment assistance funded by the U.S. Department of Labor and implemented by the CNMI's Department of Labor; and (3) technical assistance provided by the U.S. Department of the Interior. In 2016, a U.S.–CNMI consultative process resulted in a report to Congress with six recommendations, including one to raise the cap on CW-1 foreign worker permits and extend the permit program beyond 2019.
section_title: What GAO Recommends
paragraphs: GAO is not making recommendations.

section_title: Letter
paragraphs: The 1976 Covenant defining the political relationship between the  Commonwealth of the Northern Mariana Islands (CNMI) and the United  States exempted the CNMI from certain federal minimum wage provisions  and immigration laws but reserved the right of the federal government to  apply federal law in these exempted areas without the consent of the  CNMI government. In accordance with the Covenant, the CNMI  government established a minimum wage until 2007 and operated an  immigration system that included foreign worker permits, until the federal  government assumed control of this system in 2009.
A 2007 law included a provision to apply the U.S. minimum wage to  the CNMI, increasing CNMI’s minimum wage in periodic increments  until it reaches the federal minimum wage, which is currently $7.25  per hour. Subsequent legislation included a provision for GAO to  report on the impact of past increases in minimum wages in the  CNMI.
The Consolidated Natural Resources Act of 2008 amended the U.S.– CNMI Covenant to establish federal control of CNMI immigration  beginning in 2009. The act established a transition period and special  provisions for foreign visitors, investors, and workers. Specifically, it  required the U.S. Department of Homeland Security (DHS) to  establish a temporary work permit program for foreign workers and to  reduce annually the number of permits issued, reducing them to zero  by the end of the transition period—now set to occur on December 31,  2019. As part of the temporary work permit program, DHS collects a  vocational education fee from prospective employers of those  applying for special nonimmigrant visas and transfers these fees to  the CNMI government for ongoing vocational programs provided by  the CNMI educational entities. The act also required that GAO report  on the implementation of federal immigration law in the CNMI and its  potential impact on the CNMI economy.
In addition to the statutory provisions above, we were asked by the Chair  and Ranking Member of the Senate Committee on Energy and Natural  Resources and Representative Sablan to review the implementation of  federal immigration laws in the CNMI. Accordingly, our objectives were to  examine (1) changes in CNMI’s labor market since the federally  mandated minimum wage increases began, (2) the potential economic  impact of reducing the number of foreign workers to zero, and (3) federal  and CNMI efforts to address labor force challenges.
We took the following steps to address these objectives (see app. I for  further details of our objectives, scope, and methodology):
To understand changes in the CNMI’s labor market since the  minimum wage increases began, we reviewed prior GAO reports and  analyzed data from the U.S. Department of Commerce (DOC), the  CNMI’s Departments of Finance and Commerce, and CNMI’s tourism  organization. We also analyzed the results of the 2014 CNMI  Prevailing Wage & Workforce Assessment Study to estimate the  proportion of workers directly affected by recent and future minimum  wage increases, by industry and occupation. We also calculated the  number of foreign workers by industry and occupation by analyzing  CNMI tax records since 2001. We determined that the data gathered  for the 2014 Prevailing Wage Study and CNMI tax records since 2001  were sufficiently reliable for our purposes.
To evaluate the potential economic impact of reducing the number of  foreign workers in the CNMI to zero and replacing them with domestic  workers, we evaluated DHS data on the annual number of approved  CNMI-Only transitional worker (CW-1) permits and created a  simulated mathematical model of how the CNMI’s gross domestic  product (GDP) would change if the number of foreign workers was  reduced to zero. To evaluate the possible replacement of CW-1  workers with domestic workers, we analyzed the number of people  seeking employment in 2016, in the context of labor requirements for  the CNMI’s planned development projects as of December 20, 2016.
To assess federal and CNMI government efforts to address labor  force challenges, we reviewed the CNMI’s job training programs,  grant agreements between the U.S. and CNMI governments, and a  report generated through a consultative process specified in section  902 of the U.S.–CNMI Covenant (hereafter, the 902 Report). For job  training programs, we analyzed the use of CW-1 vocational education  fees that DHS transferred to the CNMI government in fiscal years  2012 through 2016. We interviewed CNMI officials at three  educational entities that received funding from those fees: Northern  Marianas College, Northern Marianas Trades Institute, and the CNMI  Public School System. In addition, we interviewed and analyzed data  provided by CNMI scholarship organizations that provide funding to  students to attend institutions of higher education. To better  understand employment and training programs funded through the  U.S. Department of Labor (DOL), we interviewed officials from DOL  and the CNMI’s Department of Labor and analyzed performance data  for program years 2012 through 2015. Finally, we also interviewed  officials and reviewed documents provided by the U.S. Department of  the Interior (DOI) and the CNMI government to better understand  grant agreements between the U.S. and CNMI governments and the  902 consultative process (hereafter, 902 Consultations).
For all three objectives, we conducted fieldwork in the CNMI and  interviewed officials from DHS, DOI, and DOL in Washington, D.C.;  San Francisco, California; and Honolulu, Hawaii. Our fieldwork  interviews took place on the CNMI islands of Saipan, Tinian, and  Rota, and included meetings with the CNMI Governor; the Mayors of  Tinian and Rota; and the CNMI Secretaries of Commerce, Finance,  and Labor and semistructured interviews and facilitated small-group  discussions with representatives of CNMI businesses. In Saipan, we  also facilitated small-group discussions with CW-1 workers, U.S.  workers currently employed by CNMI businesses, and students or  graduates of CNMI job training programs.
We conducted this performance audit from August 2016 to May 2017 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: Part of the Mariana Islands Archipelago, the CNMI is a chain of 14 islands  in the western Pacific Ocean—just north of Guam and about 3,200 miles  west of Hawaii (see fig. 1). The CNMI had a total population of 53,890,  according to preliminary results of the CNMI’s 2016 Household, Income,  and Expenditures survey. Almost 90 percent of the population (48,200)  resided on the island of Saipan, with an additional 6 percent (3,056) on  the island of Tinian and 5 percent (2,635) on the island of Rota.
subsections: section_title: U.S.–CNMI Relations
paragraphs: The United States took control of the Northern Mariana Islands from  Japan during the latter part of World War II. After the war, the U.S.  Congress approved a trusteeship agreement making the United States  responsible to the United Nations for the administration of the islands. In  1976, the District of the Mariana Islands entered into the Covenant with  the United States establishing the island territory’s status as a self- governing commonwealth in political union with the United States. This  Covenant grants the CNMI the right of self-governance over internal  affairs and grants the United States complete responsibility and authority  for matters relating to foreign affairs and defense affecting the CNMI.  The Covenant initially made many federal laws applicable to the CNMI,  including laws that provide federal services and financial assistance  programs. However, the Covenant preserved the CNMI’s exemption from  certain federal laws that had previously been inapplicable to the Trust  Territory of the Pacific Islands, including certain federal minimum wage  provisions and immigration laws, with certain limited exceptions. Under  the terms of the Covenant, the federal government has the right to apply  federal law in these exempted areas without the consent of the CNMI  government. Section 902 of the Covenant provides that the U.S. and  CNMI governments will designate special representatives to meet and  consider in good faith issues that affect their relationship and to make a  report and recommendations. These intermittent discussions between the  United States and the CNMI are commonly referred as 902 Consultations.
Several U.S. government programs operate in the CNMI, including  programs administered by DHS, DOI, and DOL.
DHS has three primary components—U.S. Customs and Border  Protection (CBP), U.S. Immigration and Customs Enforcement (ICE),  and U.S. Citizenship and Immigration Services (USCIS)—that enforce  federal immigration laws and maintain border control in the CNMI.  CBP inspects travelers at the Saipan and Rota airports and seaports  to determine whether to admit them into the CNMI. ICE enforces  federal immigration laws in the CNMI, for example, by identifying,  apprehending, detaining, and removing criminal foreign nationals and  other foreign nationals that threaten the security of the CNMI and the  United States. USCIS processes foreign nationals’ applications for  immigration benefits, that is, the ability to live, and in some cases  work, in the CNMI permanently or temporarily.
DOI’s Office of Insular Affairs coordinates federal policies and  provides technical and financial assistance to the CNMI. The  Covenant requires DOI to consult regularly with the CNMI on all  matters affecting the relationship between the U.S. government and  the islands. In May 2016, President Obama designated the  Assistant Secretary for Insular Affairs as the Special Representative  for the United States for the 902 Consultations, a process initiated at  the request of the Governor of the CNMI to discuss and make  recommendations to Congress on immigration and labor matters  affecting the growth potential of the CNMI economy, among other  topics. The 902 Consultations resulted in a report to the President in  January 2017, which we refer to as the 902 Report.
DOL requires employers to fully test the labor market for U.S. workers  to ensure that U.S. workers are not adversely affected by the hiring of  nonimmigrant and immigrant workers, except where not required by  law. DOL also provides grants to the CNMI government supporting  Adult, Dislocated Worker, and Youth programs, which include job  search assistance, career counseling, and job training. From 1999  through 2015, DOL provided such grants under the Workforce  Investment Act of 1998 (WIA) and the Workforce Innovation and  Opportunity Act of 2014 (WIOA).
section_title: Changes in Application of Federal Minimum Wage and Immigration Laws
subsections: section_title: Minimum Wage Changes
paragraphs: In 2007, the minimum wage provisions of the Fair Labor Standards Act of  1938 were applied to the CNMI, requiring the minimum wage in the CNMI  to rise incrementally to the federal level in a series of scheduled  increases. In July 2007, the CNMI minimum wage increased from $3.05  to $3.55 per hour and then increased by $0.50 annually thereafter. A  2010 law delayed the scheduled minimum wage increase for 1 year,  providing for no increase in 2011. On September 30, 2012, the  scheduled annual increase raised the CNMI minimum wage to $5.55 per  hour. In September 2013, additional legislation canceled the scheduled  2013 and 2015 annual increases. Under current law, the next minimum  wage increase will occur on September 30, 2017, and the CNMI will  reach the current U.S. minimum wage on September 30, 2018 (see table 1). If the original 2007 law increasing the minimum wage had not been  subsequently amended, the minimum wage in the CNMI would have  reached the U.S. minimum wage in May 2015.
In 2008, the Consolidated Natural Resources Act of 2008 amended the  U.S.–CNMI Covenant to apply federal immigration law to the CNMI,  following a transition period. Among other things, the act includes  several provisions affecting foreign workers during the transition period.
To provide for an orderly transition from the CNMI immigration system to  the U.S. federal immigration system under the immigration laws of the  United States, on September 7, 2011, DHS established, and currently  administers, the CW permit program. Under this program, foreign workers  are able to obtain, through their employers, nonimmigrant CW-1 status  that allows them to work in the CNMI. Dependents of CW-1  nonimmigrants (spouses and minor children) are eligible for dependent of  a CNMI-Only transitional worker (CW-2) status, which derives from and  depends on the CW-1 worker’s status.
In accordance with the Consolidated Natural Resources Act of 2008,  DHS, through USCIS, has annually reduced the number of CW-1 permits,  and is required to do so until the number reaches zero by the end of a  transition period. Since 2011, DHS has annually determined the  numerical limitation, terms, and conditions of the CW-1 permits (see table  2). The act was amended in December 2014 to extend the transition  period until December 31, 2019, and eliminate the Secretary of Labor’s  authority to provide for future extensions of the CW program.
In April 2010, DOI recommended that Congress consider new legislation  permitting guest workers who have lawfully resided in the CNMI for a  minimum of 5 years—which DOI estimated at 15,816 individuals—to  apply for long-term resident status under the Immigration and Nationality  Act. DOI recommended that Congress consider new legislation allowing  these workers to apply for one of the following: (1) U.S. citizenship;  (2) permanent resident status leading to U.S. citizenship (per the normal  provisions of the Immigration and Nationality Act relating to  naturalization), with the 5-year minimum residence spent anywhere in the  United States or its territories; or (3) permanent resident status leading to  U.S. citizenship, with the 5-year minimum residence spent in the CNMI.  Additionally, DOI noted that under U.S. immigration law, special status is  provided to individuals who are citizens of the freely associated states  (Federated States of Micronesia, Republic of the Marshall Islands, and  Republic of Palau). Following this model, DOI suggested that new  legislation could grant foreign workers a nonimmigrant status, like that  negotiated for citizens of the freely associated states, and could allow  them to live and work either in the United States and its territories or in  the CNMI only. In 2013, the U.S. Senate passed legislation that would  have, among other things, established a CNMI-only permanent resident  status for aliens who resided in the CNMI as guest workers under CNMI  immigration law for at least 5 years before May 8, 2008, and are presently  residents under CW-1 status. However, this bill never became law.
section_title: Changes in Key Industries in the CNMI
paragraphs: During the expansion of the CNMI garment and tourism industries prior to  1995, the CNMI economy became dependent on foreign labor, as the  CNMI government used its authority over its own immigration policy to  bring in large numbers of foreign workers and investors. Consequently,  from 1980 to 2000, the CNMI population grew rapidly, but the U.S. citizen  share of the population fell to less than half of the CNMI population. Since  2000, the percentage of the CNMI’s population not made up of U.S.  citizens or nationals has decreased, from about 56 percent to about 43  percent as of the 2010 decennial census (see fig. 2).
Although the garment industry was able to flourish in the CNMI by  exporting products to other parts of the United States largely  unconstrained by import quotas and duties, several developments in  international trade caused the industry to decline dramatically. In January  2005, in accordance with a World Trade Organization 10-year phase-out  agreement, the United States eliminated quotas on textile and apparel  imports from other textile-producing countries, exposing the CNMI  apparel industry’s shipments to the United States to greater competition.  Subsequently, the value of CNMI textile exports to the United States  dropped from a peak of $1.1 billion in 1998 to $677 million in 2005 and to  close to zero in 2010.
After a decade of decline, by 2009, almost all of the garment factories had  closed, and the CNMI was in its sixth year of a contracting economy and  shrinking GDP. As figure 3 shows, a large part of the GDP decline from  2002 to 2009 reflected the declining garment industry, which dominated  the CNMI’s manufacturing sector.
Since 1990, the CNMI’s tourism market has experienced considerable  fluctuation, as shown by the total annual number of visitor arrivals (see  fig. 4). Total visitor arrivals to the CNMI dropped from a peak of 726,690  in fiscal year 1997 to a low of 338,106 in 2011, a 53 percent decline.  Since 2011, however, visitor arrivals have increased by 48 percent,  reaching 501,489 in fiscal year 2016.
Data from the Marianas Visitors Authority show that the downward trend  in Japanese arrivals from 2013 to 2016 was offset by the growth in  arrivals from China and South Korea. While eligible Japanese and  South Korean visitors enter the CNMI under the U.S. visa waiver  program, Chinese visitors are not eligible and are permitted to be  temporarily present in the CNMI under DHS’s discretionary parole  authority, according to DHS officials. DHS exercises parole authority to  allow, on a case-by-case basis, eligible nationals of China to enter the  CNMI temporarily as tourists when there is significant public benefit,  according to DHS data. From fiscal years 2011 to 2016 the percentage of  travelers that arrived at the Saipan airport and were granted discretionary  parole increased from about 20 percent to about 50 percent of the total  travelers allowed to enter, according to our analysis of CBP data.
section_title: CNMI’s Labor Market Has Begun to Grow While Continuing to Rely on Foreign and Minimum Wage Workers
paragraphs: According to CNMI tax data, overall employment in the CNMI increased  by about 8 percent from 2013 through 2015. Foreign workers remain the  majority of employed workers in the CNMI. From 2007 to 2015, inflation  adjusted average earnings for those who maintained employment in the  CNMI also rose by 18 percent. We estimate that approximately 62  percent (15,818 of 25,657) of the CNMI’s wage workers in 2014,  assuming they maintained employment, would have been directly  affected by the federally mandated 2016 wage increase, which raised  CNMI’s minimum wage from $6.05 to $6.55 per hour.
subsections: section_title: After Years of Decline, CNMI Employment Has Risen, but Foreign Workers Remain the Majority of Those Employed
paragraphs: Following consecutive annual decreases in the number of employed  workers from 2005 to 2013, as garment factory employment numbers fell  to zero, CNMI employment started recovering after 2013, according to  CNMI tax data. Figure 5 shows the number of employed workers and the  number of foreign and domestic workers in the CNMI from 2001 to 2015  based on CNMI tax data. As the figure shows, the number of employed  workers increased from the lowest point in 2013 by approximately 8  percent by 2015 (from 23,344 to 25,307). However, the number employed  in 2015 (25,307) was still approximately 31 percent less than the number  employed in 2007 (36,524).
Although the number and percentage of foreign workers have fallen since  2001, foreign workers are still the majority of the CNMI workforce. Of the  25,307 workers in the CNMI in 2015, slightly over half (12,784) were  foreign workers, according to CNMI tax data. The number of foreign  workers fell from a peak of over 38,500 in 2002 (roughly 76 percent of the  employed workers) and was under 13,000 in 2015. In contrast, since  2002, the number of domestic workers has fluctuated year to year,  ranging from about 10,500 to about 13,500, but increased by 17 percent  from 2013 to 2015.
Foreign workers make up a large percentage of certain CNMI industries  and occupations. Among industries and occupations with the largest  number of CNMI workers, construction and accommodation or food  services—or hospitality—had the highest percentage of foreign workers,  with 80 percent or more non-U.S. workers, according to data from the  CNMI’s 2014 Prevailing Wage Study. In contrast, the public  administration industry has the lowest percentage of foreign workers, with  about 22 percent. See appendix III for more details.
Inflation adjusted average earnings for those in the CNMI who maintained  employment rose by 18 percent from 2007 to 2015. The increase is  attributable to a large increase in earnings from 2012 to 2013, when  inflation adjusted average earnings increased from $14,476 to $16,221.  Using 2015 prices, the inflation adjusted minimum wage rose by 54  percent from its lowest point in 2006 ($3.93) to its highest point in 2015  ($6.05). (See fig. 6.)
section_title: A Majority of CNMI Workers Make the Minimum Wage; Future Wage Increases Will Affect More of Them, Particularly in the Hospitality and Construction Industries
paragraphs: According to our analysis of the CNMI’s Department of Commerce data, a  majority of CNMI workers made the minimum wage in 2016. On  September 30, 2016, the CNMI’s minimum wage increased from $6.05 to  $6.55 per hour. We estimate that approximately 62 percent (15,818 of  25,657) of the CNMI’s wage workers in 2014, assuming they maintained  employment, would have been directly affected by the federally mandated  2016 wage increase. Since 72 percent of the total foreign workers made  less than or equal to $6.55 per hour in 2014, they were more likely to  have been directly affected by the 2016 wage increase than domestic  workers, with only 41 percent making less than or equal to $6.55.
As the minimum wage continues to increase in the CNMI, a growing  percentage of wage workers will be directly affected. By the time the  minimum wage reaches $7.25 in 2018, approximately 68 percent of  CNMI’s wage workers will be directly affected (see table 3).
Our analysis also shows that roughly 80 percent of all jobs in the  hospitality and construction industries were directly affected by the 2016  increase in the minimum wage. By 2018, approximately 85 percent of all  jobs in these two industries will be directly affected by the scheduled  minimum wage increase to $7.25. See appendix IV for more details.
section_title: Opinions about Future Minimum Wage Increases Are Mixed
paragraphs: Some employers we contacted reported that the scheduled increase in  the CNMI minimum wage from $6.55 per hour to $7.25 per hour in  October 2018 would have little or no impact because they already pay  equal or higher wages or offer other benefits. One employer reported that  increasing the minimum wage would be good for the economy. Another  employer stated that a higher minimum wage would attract more  domestic workers to work in the CNMI who would otherwise take jobs in  Guam or the U.S. mainland, where wages are higher.
Other employers we interviewed expressed concerns about minimum  wage hikes because of possible decreases in profits that could require  them to downsize. One employer estimated that its costs would increase  by almost $1 million annually the next time the minimum wage increases.  Another employer told us that when the minimum wage increases, all  wage workers—including those making higher wages—receive pay  increases, causing profits to further decline. The Hotel Association of the  Northern Mariana Islands also expressed concern about the CNMI bill to  raise the minimum wage so soon after the September 2016 federally  mandated increase, stating that the increase would be difficult to absorb,  particularly for small businesses.
In 2016, the CNMI legislature considered but did not adopt a bill to raise  the local minimum wage to the federal minimum wage of $7.25 per hour 2  years earlier than would occur under the federal schedule of increases.  To help attract a U.S. workforce and provide more income for families in  the CNMI, the CNMI Governor and leading civic business organizations  supported the bill, according to the 902 Report. The results of an October  2016 membership survey conducted by the Saipan Chamber of  Commerce revealed that only 13 out of 36 Saipan businesses responding  to the survey did not support this bill.
section_title: Eliminating CW-1 Permits Would Negatively Affect the Economy; Current and Planned Demand for Labor Exceeds Supply of U.S. Workers
paragraphs: We analyzed the economic impact of removing all foreign workers with  CW-1 permits (or CW-1 workers) from the CNMI’s economy using the  most recent GDP information available from calendar year 2015. We  determined that the CNMI’s 2015 GDP would decline by 26 to 62 percent  with no CW-1 workers, depending on the assumptions made. Demand for  CW-1 workers in the CNMI exceeded the available number of CW-1  permits in 2016, while planned hotels, casinos, and other infrastructure  projects estimate needing thousands of new employees. The existing  CW-1 permits for foreign workers and the local supply of U.S. workers are  insufficient to meet this estimated future demand. CNMI employers face  multiple challenges in recruiting and retaining U.S. workers, according to  several CNMI employers that participated in our discussion groups and  semistructured interviews.
subsections: section_title: Economic Analysis and Recent Data Show That Ending the CW Program Could Have a Large Negative Effect on the Economy
paragraphs: If all CW-1 workers, or 45 percent of the total workers in 2015, were  removed from the CNMI’s labor market, we project a 26 to 62 percent  reduction in the CNMI’s 2015 GDP, depending on the assumptions  made. To estimate the possible effect of a reduction in the number of  workers with CW-1 permits in the CNMI to zero—through the scheduled  end of the CW program in 2019—we employed an economic method that  enabled us to simulate the effect of a reduction under a number of  different assumptions. Available data suggest that predictions based on  our model are consistent with the experience of the CNMI during and  after the departure of the garment industry, from 2002 through 2015,  which also saw a large drop in the number of foreign workers.
Predicting the economic effect of a reduction of CW-1 workers is more  challenging than predicting the effect of a reduction of domestic workers  in general because of several sources of uncertainty, including that  (1) the two groups’ economic effects may vary (i.e., they may serve in  different types of jobs) and (2) the numbers of domestic workers who  enter the CNMI labor market may vary. From 2013 to 2015, the number of  domestic workers in the CNMI increased by almost 20 percent.
Given these and other uncertainties, we simulated the effects of a  reduction in the number of CW-1 workers that allowed us to vary  assumptions based on economic literature as well as available data on  the CNMI economy. In some simulations, for example, we assumed that  domestic and CW-1 workers were perfect substitutes—meaning that  domestic workers could easily replace foreign workers in production. In  other simulations, we assumed that domestic and CW-1 workers were  complements, implying that domestic workers would become less  productive as the number of CW-1 workers fell. Our analysis assumed  that 45 percent of the workforce was made up of CW-1 workers, based on  a combination of CNMI tax data and the CNMI’s 2014 Prevailing Wage  Study data.
The CNMI’s actual 2015 GDP—the most recent year for which GDP data  were available—was $922 million. To understand the economic impact of  ending the CW program, we analyzed how removing all CW-1 workers  would have changed the CNMI’s actual 2015 GDP. Our economic model  and the results of 10,000 simulations show that had there been no CW-1  workers in 2015, there is a
25 percent likelihood that the CNMI’s 2015 GDP would have ranged  from $583 million to $680 million, which is 26 to 37 percent lower than  the actual value;
50 percent likelihood that it would have ranged from $462 million to  $583 million, which is 37 to 50 percent lower than the actual value;  and
25 percent likelihood that it would have ranged from $353 million to  $462 million, which is 50 to 62 percent lower than the actual value  (see fig. 7).
Across the full range of probable outcomes, the elimination of the CW  program would result in a 26 to 62 percent decline in the CNMI’s 2015  GDP, a relatively large negative effect on the economy.
In a separate retrospective economic analysis, using past CNMI GDP and  employment data, from 2002 to 2015, we estimated that a 10 percent  decline in the number of workers during this period was associated with  an 8.3 percent decline in the size of the economy, on average. Applying this factor to an analysis of the CNMI’s current economic situation  suggests that a reduction in the number of foreign workers with CW-1  permits to zero—which would be equivalent to reducing the number of  total workers by 45 percent, all else unchanged—would lead to a 37  percent contraction in the size of the CNMI economy as measured by  GDP. This finding is within the range presented in the simulation model  above.
section_title: Ending the CW Program Is Expected to Negatively Affect CNMI Businesses
paragraphs: The CNMI government stated in the 902 Report that ending the CW  program in 2019 would cripple the CNMI economy and dramatically derail  economic development. Employers we contacted generally expect the  planned termination of the CW program in 2019 to have negative effects.  In all four facilitated discussion groups and five of the seven  semistructured interviews, employers reported that the planned  termination of the CW permit program would have negative effects. A  participant in one discussion group reported that he expects his gross  business sales to decline by 30 percent. The owner of the only airline that  transports passengers to and from Saipan, Tinian, and Rota told us that  12 of his employees will be affected by the 2017 CW-1 cap next summer.  Without them, he did not think he would be able to remain in business.
Some employers told us that they already have been negatively affected  when they were unable to renew CW-1 worker permits. In all four  facilitated discussion groups and six of seven semistructured interviews,  at least one employer reported that reaching the CW-1 cap in fiscal years  2016 and 2017 had negative effects. For example, in one discussion  group, a small business employer reported having lost its only  videographer because he was unable to obtain a CW-1 permit, resulting  in lost sales. A large employer reported that it would not be able to open  at full capacity after learning that 40 workers in one of its units would be  affected by the CW-1 cap for fiscal year 2017. The employer also  reported having spent more than $30,000 to purchase flight tickets home  for 18 CW-1 workers when their permits expired, as well as $20,000 to  apply for H-1B visas for some employees.
A large employer with which we met individually reported that the biggest  hardship it faced was at its restaurants. The employer had to close one of  its restaurants for 2 months because of the departure of CW-1 workers  unable to renew their permits. A participant in our discussion group with  Tinian employers reported that several farms had closed on the island  because of the lack of CW-1 workers, requiring costly food imports. In  addition, the employer reported that Tinian lost its only boat captain in  July 2016 because of the cap on the number of CW-1 permits. As a  result, all cargo to the island must arrive by plane. The owner of a  construction company told us that six of his CW-1 workers were affected  by the fiscal year 2017 cap, which will likely cause his business to pay  penalties for not completing scheduled projects. He has already  downsized his staff from 40 to 6 CW-1 workers.
section_title: Recent and Planned Demand for Labor Exceeds Existing CW-1 Permits and the Supply of Local Workers
subsections: section_title: Recent Labor Demand
paragraphs: The CNMI economy currently is experiencing growing demand for  workers, particularly among occupations in construction and hospitality.  Since fiscal year 2013, demand for CW-1 permits has doubled, and in  fiscal year 2016, demand exceeded the numerical limit (or cap) on  approved CW-1 permits set by DHS. The number of approved CW-1  permits grew from 6,325 in fiscal year 2013 to 13,299 in fiscal year 2016.  In 2016, when the cap was set at 12,999, DHS received enough petitions  by May 6, 2016, to approve 13,299 CW-1 permits, reaching the cap 5  months prior to the end of the fiscal year. On October 14, 2016, 2 weeks  into fiscal year 2017, DHS announced that it had received enough  petitions to reach the CW-1 cap and would not accept requests for new  fiscal year 2017 permits during the remaining 11 months. In interviews,  some employers reported being surprised to learn that the cap had been  reached when they sought renewals for existing CW-1 workers. See  table 4 for the numerical limit of CW-1 permits and number of permits  approved by fiscal year.
Based on DHS data on approved CW-1 permits, by country of birth,  occupation, and business, from fiscal years 2014 through 2016, the  number of permits approved for Chinese nationals increased, the number  of permits approved for construction workers increased, and a large  number of CW-1 permits were approved for three new businesses.
Chinese nationals. In 2016, DHS approved 4,844 CW-1 permits for  Chinese workers, increasing from 1,230 in 2015 and 854 in 2014. This  represents a change in the source countries of CW-1 workers, with the  percentage of workers from the Philippines declining from 65 to 53  percent during this period, while the share from China rose from 9 to 36  percent (see table 5).
Construction workers. In 2016, DHS approved 3,443 CW-1 permits for  construction workers, increasing from 1,105 in 2015 and 194 in 2014 (see  table 6).
New businesses. In 2016, DHS approved 3,426 CW-1 permits for three  construction businesses, representing 26 percent of all approved  permits. Two of these businesses had not previously applied for CW-1  permits. The third business was new in 2015 and was granted only 62  CW-1 permits that year.
A key factor in the additional demand for labor in 2016 was the  construction of a new casino in Saipan. In August 2014, the CNMI  government entered into a casino license agreement with a business to  build a phased development project within 8 years with a minimum of  2,004 guest rooms and areas for gaming, food, beverage, retail, and  entertainment, among other things. The total investment cost of the  project was estimated at $3.14 billion (2014 dollars). The agreement  required that construction of the initial gaming facility be completed no  later than 36 months from the date of the license, or by August 2017.  However, in April 2017, the business requested amendments to the  license agreement, including an extension of the construction completion  and operation start date for the initial gaming facility to August 31, 2018,  which was agreed to by the CNMI government. The amendment to the  license agreement notes that the business justified these amendments in  part based on constraints contained in federal immigration laws in relation  to the employment of qualified workers needed to build the facility. See  figure 8 for photos showing the initial gaming facility’s development site in  Saipan both before and during construction.
The firms contracted to build the new casino under construction in Saipan  have primarily employed Chinese workers. According to the CNMI  government, while CNMI law and regulations require businesses  operating in the CNMI to attempt to employ at least 30 percent U.S.  workers, the casino operator and construction firms received an  exemption from this requirement from the CNMI Department of Labor.  The Consolidated Natural Resources Act of 2008 allows CNMI employers  to petition for H-2 visas and bring temporary workers, such as  construction workers, to the CNMI without counting against the numerical  restriction for such visas. However, China is not listed as an eligible  country for H-2 visas.
section_title: Planned Labor Demand
paragraphs: Amid the uncertainty of the future availability of foreign labor, the CNMI  government has granted zoning permits to planned projects that will  require thousands of additional workers. Twenty-two new development  projects, including six new hotels or casinos in Saipan and two new hotels  or casinos in Tinian, are planned for construction or renovation by 2019.  Beyond the construction demand created by these projects, the CNMI’s  Bureau of Environmental and Coastal Quality estimates that at least  8,124 employees will be needed to operate the new hotels and casinos.
According to data provided by the Environmental Bureau, most of this  planned labor demand is for development on the island of Tinian, where  two businesses plan to build casino resorts, with an estimated labor  demand of 6,359 workers for operations—more than twice the island’s  population in 2016. According to the U.S. Department of the Treasury,  the existing casino and hotel on Tinian closed in 2015 after having been  fined $75 million by the department for violations of the Bank Secrecy Act  of 1970. One of the two Tinian developments offers overseas  immigration services, including assistance with obtaining employment or  investment-based immigration to the United States. We observed a  billboard advertisement in Tinian with Chinese writing indicating that by  investing in a new development in Tinian, an investor’s family members  would all get American green cards. This resort development, whose  plans estimate a labor force of 859, has undertaken site preparation,  while the other larger resort project, whose plans estimate a labor force of  5,500, had not initiated construction as of December 2016.
Currently, the CNMI government does not have a planning agency or  process to ensure that planned projects are aligned with the CNMI’s  available labor force, according to CNMI officials. In January 2017, a bill  was introduced in the CNMI Senate to establish an Office of Planning and  Development within the Office of the Governor.
section_title: Available Supply of Domestic Labor
paragraphs: The current number of unemployed domestic workers is insufficient to  replace the existing CW-1 workers or to fill all the nonconstruction jobs  that planned development projects are expected to create once their  business operations commence.
In 2016, 9,856 of the 13,299 CW-1 permits approved by DHS were  allocated to workers engaged in nonconstruction-related  occupations. When the CW program ends in 2019, available data  show that the unemployed domestic workforce, estimated at 2,386  in 2016, will be well below the number of workers needed to replace  currently employed CW-1 workers in nonconstruction-related  occupations.
In addition, the unemployed workforce would fall far short of the  demand for additional workers in nonconstruction related occupations  needed to support the ongoing operations of planned development  projects—currently estimated at 8,124 workers by 2019.
Narrowing this gap would require CNMI employers to recruit domestic  residents present in the CNMI but not currently in the labor force. Key  sources of additional labor force entrants to replace current CW-1  workers or fill new positions are as follows:
High school or college graduates. In 2016, CNMI high schools  graduated 678 students and the Northern Marianas College  graduated 204 students. In addition, a smaller number of students  leave high school or the college without a diploma and join the labor  force.
Domestic residents not in the CNMI labor force. According to the  CNMI’s 2016 Health Survey, there are 9,272 U.S. citizens and  permanent residents over the age of 16 who are not currently in the  labor force. In addition to students, this group consists largely of  homemakers, retired workers, seasonal workers in an off-season, the  institutionalized, and those doing unpaid family work, according to the  census. Overall, the survey found that labor force participation was  lower for the population born in the CNMI (57 percent) compared with  the overall population (69 percent).
Other U.S.-eligible workers. Workers could be recruited from U.S.  states, U.S. territories, and the freely associated states (Federated  States of Micronesia, Republic of the Marshall Islands, and Republic  of Palau). For example, in 2003, 1,909 freely associated state workers  were employed in the CNMI as compared with 677 of these workers in  2015, according to CNMI tax data. Moreover, many citizens from the  freely associated states migrate to the United States each year,  including to nearby Guam. Guam and Hawaii, the closest U.S. areas  to the CNMI, both have higher local minimum wages than the CNMI,  currently at $8.25 and $9.25 per hour, respectively, according to DOL.
section_title: While Some Employers Report Successes, Others Report Facing Multiple Challenges in Efforts to Recruit and Retain U.S. Workers
paragraphs: Employers in the CNMI are required to attempt to recruit and hire U.S.  workers. The CNMI government has a goal that all employers hire at least  30 percent U.S. workers, and employers are generally required to post all  job openings to the CNMI Department of Labor’s website. However, the  CNMI government can and has granted exemptions to this requirement.  From May 8, 2015, to May 27, 2016, seven businesses were granted  exemptions, according to data provided by the CNMI Department of  Labor. In addition, all employers that apply for CW-1 permits must attest  that no qualified U.S. worker is available for the job opening.
At least one employer in all four facilitated employer discussion groups  and six of seven employers in semistructured interviews reported on  efforts to recruit U.S. workers. One employer told us that by collaborating  closely with the local trade institute it had significantly reduced its reliance  on foreign workers. Another employer attributed its successful recruitment  efforts to an apprenticeship program offered by the CNMI’s Public School  System. One employer explained how it had successfully developed a  flexible work scheduling approach that allowed it to use part-time high  school and college students to staff its facilities so that it had very few  CW-1 workers. Several business owners told us that they made efforts to  recruit workers from the U.S. mainland, Puerto Rico, or the freely  associated states (Federated States of Micronesia, Republic of the  Marshall Islands, and Republic of Palau). To identify potential staff, one  employer told us that she had entered into a contract with a labor recruiter  in Micronesia.
However, other CNMI employers reported that they face the following  challenges in recruiting and retaining U.S. citizens, among others:
Unsatisfactory results of job postings. One employer told us that  advertisements posted on the CNMI’s Department of Labor’s website  yielded hundreds of unqualified applicants to which the employer must  respond individually. An employer looking for workers with a specific  license was sent dozens of résumés of applicants lacking such a  license. Some of the forwarded résumés had not been updated in 10  years. Another employer continued to receive the résumés of  employees who had previously been fired.
High costs of recruitment. One employer that recruited nine workers  from the U.S. mainland told us that relocation costs were very  expensive. Representatives from one company spent more than $1  million to recruit and relocate 120 U.S. workers to Saipan, but half of  them left after a typhoon in 2015, according to the 902 Report.  Another large employer told us that costs of relocation to Saipan are  extremely expensive and cannot be circumvented, particularly for  middle management positions.
High turnover. The geographical distance and remoteness of the  CNMI from Hawaii and the U.S. mainland make it difficult to retain  U.S. workers. One employer told us that the U.S. workers successfully  recruited from California did not stay with the employer for 3 months  because of the long distance from home, among other factors. The  four local workers that another employer hired to replace one CW-1  worker did not maintain employment for more than 2 weeks each.  Meanwhile, all of the local hires recruited through an apprenticeship  program left within 2 years to take higher paying jobs with the CNMI  government, according to another employer. A hotel employer told us  the turnover rate among workers recruited locally is high because  employers in Guam, Hawaii, and other off-island locations offer higher  wages.
section_title: Federal and CNMI Efforts to Address Labor Force Challenges Include Job Training Programs, Scholarships, Technical Assistance, and a Consultative Process
paragraphs: The federal and CNMI governments support programs seeking to address  the CNMI’s labor force challenges. These programs include the following:  job training funded by employers’ CW-1 vocational education fees that  DHS transfers to the CNMI government,
CNMI scholarship programs funded by the CNMI government and  local license fees for gaming machines, employment and training assistance funded by DOL, and  technical assistance funded by DOI.
In recent years, on average, DHS transferred about $1.8 million per year  in CW-1 vocational education fees and DOL provided about $1.3 million  per year to the CNMI for employment and training programs. Although  scholarship entities in the CNMI provide an average of $1.5 million in  financial assistance per year to recipients to attend institutions of higher  education or vocational training, according to these entities, from 60 to 90  percent of these recipients default on the terms of their scholarship  agreements. In addition, the recently completed 902 Consultations  between the U.S. and CNMI governments resulted in several  recommendations for congressional and executive actions that seek to  alleviate immigration and labor force challenges faced by the CNMI.
subsections: section_title: Fees Collected by CW Program Support Job Training
paragraphs: DHS collects the $150 vocational education fee assessed for each foreign  worker on a CW-1 petition and typically transfers the fees to the CNMI  government each month. To support vocational education curricula and  program development, in fiscal years 2012 through 2016, DHS  transferred to the CNMI Treasury about $9.1 million in CW-1 fees (see fig.  9).
In fiscal years 2012 through 2016, the CNMI government allocated about  $5.8 million of the $9.1 million in CW-1 vocational education fees to three  educational institutions (see fig. 10). At present, the CW-1 fees support  job training programs at Northern Marianas College and Northern  Marianas Trades Institute and in recent years also funded job training  provided by CNMI’s Public School System. All three institutions reported  using a majority of the CW-1 fees to pay the salaries and benefits of  faculty and staff members involved in job training programs. The CNMI  legislature generally appropriates the CW-1 funding before it is allocated  to recipient entities, according to the CNMI. Of the $9.1 million that DHS  transferred to the CNMI during fiscal years 2012 to 2016, about $3.3  million remained available for programing in fiscal year 2017.
Northern Marianas College. In fiscal years 2013 through 2016, the  college, the CNMI’s only U.S.-accredited institution of higher learning,  received $2.1 million in CW-1 funding and prepared annual reports  describing how the funds were used to train the CNMI workforce for  occupations in which foreign workers currently outnumber U.S.  workers. According to the annual report for fiscal year 2016, the  college used its CW-1 funding to provide vocational courses and  services in business, nursing, community development, and  information technology. The college reported using its CW-1 funding  to support 457 students in the fall of 2015, 434 such students in the  spring of 2016, and 228 students in the summer of 2016. In fiscal year  2016, 66 students graduated from the business and nursing programs  and 33 of them found employment upon graduation, according to the  college’s annual report. The college reported that CW-1 funding also  supported training and services for 891 participants of community- based learning programs offered by the college’s Community  Development Institute (programs such as continuing education,  language training, and customized workforce training for public and  private sector organizations). In addition, the college reported using  CW-1 funding to conduct an information technology boot camp to  prepare local workers for information technology and data  management positions. Two boot camp sessions were conducted,  training about 45 participants.
Northern Marianas Trades Institute. In fiscal years 2014 through  2016, the institute—a private, nonprofit facility for vocational education  established in 2008—received $1.7 million in CW-1 funding. The  institute specializes in training youths and adults in construction,  hospitality, and culinary trades. Training programs range from 4  months to 2 years, and students can earn certificates upon completion  of a full course of study. The institute also helps students obtain  internships and employment by establishing partnerships with private  sector companies. For example, in 2014 the institute established an  apprenticeship program with a large hotel in Saipan to enable its  students to gain experience working in a restaurant kitchen and to  improve their cooking skills. In return, the hotel provides instructors to  the institute for its new culinary training facility, according to the  human resources manager of the hotel. The institute’s senior officers  told us that in fiscal year 2016, 300 students were enrolled in the  institute’s fall, spring, and summer sessions, and as of November  2016, 132 of these students had found employment after completing  their training.
CNMI’s Public School System. In fiscal years 2012 through 2015,  the Public School System—which consists of 20 public schools,  including 5 high schools that graduated 662 students in the 2014– 2015 school year—received $2 million in CW-1 funds for its  cooperative education program designed to prepare high school  students for the CNMI’s job market. The program consisted of training  taking place both on and off campus. Students completed résumés  and applications and completed other professional development  activities on campus and gained work experience as trainees in  private sector organizations off campus. By the end of the 2014–2015  school year, 452 students were enrolled in the cooperative education  program, according to the federal programs officer for the Public  School System. According to the Public School System’s federal  programs officer, in 2016 the Public School System’s cooperative  education program was supported not by CW-1 vocational education  fees but by a technical assistance grant provided by DOI.
We facilitated group discussions with current and former students of the  CW-1-funded programs at each of the three institutions. Several  participants told us that the training had helped them find jobs.  Participants also identified specific benefits of the training they received,  such as increased familiarity with occupations they intended to enter,  learning communication skills tailored for specific work environments, and  maintaining and improving skills in a chosen career path.
Job training supported by the CW-1 vocational education fees is generally  available on Saipan and to a limited extent on Tinian and Rota. Northern  Marianas College reported providing vocational activities on Tinian and  Rota in fiscal years 2013, 2014, and 2015, but not in 2016. The college  reported using CW-1 funding to help support 88 students on Tinian and  46 students on Rota in fiscal year 2015. Training offered by Northern  Marianas Trades Institute is available only on Saipan.
However, the employers we interviewed in the CNMI told us that the  benefits of the job training programs supported by the CW-1 vocational  education fees were limited to Saipan and that programs run by Northern  Marianas College and Northern Marianas Trades Institute were  unavailable on Tinian and Rota. For example, in our facilitated discussion  with employers in Rota, none of the employers had experience with job  training programs supported by CW-1 funding and some did not know  about the Public School System’s cooperative education program. One  employer in Rota told us that to obtain job training at Northern Marianas  College, Rota residents must fly to Saipan and pay for their own travel  and housing expenses in addition to tuition. Similarly, a Tinian employer  told us that the vocational education fees he pays for CW-1 permits do  not benefit Tinian, since training programs supported by the fees are only  offered on Saipan.
Performance or financial reporting of CW-1 fees has not always been  available. We reported in September 2012 that according to DHS officials,  the CW-1 fees transferred by DHS to the CNMI Treasury were not subject  to DHS grant terms or conditions, such as performance or financial  reporting requirements, and that the Consolidated Natural Resources Act  of 2008, which authorized the CW-1 vocational education fee, did not  direct DHS to impose any such requirements on the funds. In March  2016, the CNMI Department of Labor signed a memorandum of  agreement with the two current recipients of the CW-1 funding, Northern  Marianas College and Northern Marianas Trades Institute. As part of the  memorandum, the CNMI’s Department of Labor, through its Secretary,  was made responsible for the approval, use, and distribution of funds for  job training programs provided by the college and the institute. The  memorandum required each institution to submit an annual audit report to  the CNMI Department of Labor for each fiscal year it receives CW-1  funding. The college has submitted an annual report about its use of CW- 1 funding each year since fiscal year 2013, when it first obtained such  funding. Northern Marianas Trades Institute submitted its first report  about the use of CW-1 funding in fiscal year 2016 in March 2017.
section_title: The CNMI and Its Municipalities Provide Scholarships for U.S. Citizens to Attend College or Training
paragraphs: The CNMI government and municipalities offer eligible residents the  opportunity to apply for scholarship funds to help pay for higher education  or vocational training offered either in the CNMI or elsewhere.  Scholarship recipients can obtain financial assistance from either the  CNMI Scholarship Office or the Saipan Higher Education Financial  Assistance Office. Data provided to us by those offices show that  approximately $3.1 million in financial assistance was provided to  recipients in the CNMI to attend institutions of higher education and  vocational training in 2016 (see fig. 11).
CNMI Scholarship Office. In fiscal years 2014 through 2016, this  office provided about $3.5 million to about 655 scholarship recipients  each year to enroll in higher education or vocational training programs  in priority fields such as science, technology, engineering, math,  construction, hospitality, and nursing. Scholarship recipients must sign  memorandums of agreement that require them to return to the CNMI  within 3 months of graduating from or dropping out of the institution or  program for which they are receiving financial assistance. After  returning to the CNMI, the students must also provide services by  working in the CNMI for a period equal to the period for which they  received financial assistance. Data from the CNMI Scholarship Office  show that in fiscal years 2014 through 2016 at least 58 percent of the  recipients of scholarships from the CNMI Scholarship Office obtained  education or training outside the CNMI. Approximately 4,440 of 7,400  of the office’s current and previous CNMI scholarship recipients, or 60  percent of all recipients since the inception of the program, have  defaulted on the terms of their scholarship agreements, according to  the scholarship administrator.
Saipan Higher Education Financial Assistance Scholarship  Office. In fiscal years 2014 through 2016, this office provided about  $5.2 million in financial assistance to about 1,000 scholarship  recipients each year, supported entirely by Saipan’s municipal local  license fees for casino poker and other gaming machines.  Scholarship recipients must obtain education or training on Saipan or  off-island in priority fields of study, such as accounting, nursing,  teaching, and hospitality, among others. Recipients must also return  to the island within 3 months of graduation or nonenrollment and take  jobs in the CNMI’s private or public sector. In fiscal years 2014  through 2016, data provided by the office show that around 40  percent of all scholarship recipients each year obtained education or  training off-island. The office’s Administrator estimated that  approximately 90 percent of the 2,759 students who have received  financial aid scholarships since the program began have defaulted on  the terms of their scholarship agreements, requiring debt repayment.  In 2015, the office increased collections of outstanding debt by 55  percent over what it collected in 2014, according to the office’s 2015  annual report.
section_title: With DOL Funding, the CNMI Government Provides Job Search Assistance, Career Counseling, and Training for Adults, Dislocated Workers, and Youths
paragraphs: From July 2012 through June 2016, DOL provided about $5.3 million in  grants under the Workforce Investment Act of 1998 (WIA) and the  Workforce Innovation and Opportunity Act of 2014 (WIOA) to the CNMI  Department of Labor’s Workforce Investment Agency (see table 7). That  agency carried out WIA programs in the CNMI and now administers  programs under WIOA. DOL’s Employment and Training Administration  conducts federal oversight of these programs.
The CNMI developed a state plan outlining a 4-year workforce  development strategy under WIOA and submitted its first plan by April 1,  2016. The plan and the WIOA performance measures took effect in July  2016. According to its state plan, the CNMI Department of Labor has  formed a task force to assess approaches for using workforce programs  to prepare CNMI residents for jobs that will be available because of  ongoing reductions in the number of foreign workers and the eventual  expiration of the CW program.
Providers of DOL-funded worker training include Northern Marianas  College, Northern Marianas Trades Institute, CNMI government agencies,  and private businesses. Examples of training provided by these entities  include courses toward certification as a phlebotomy technician, a  nursing assistant, and a medical billing and coding specialist.
Under the terms and conditions of DOL grants, the CNMI’s Workforce  Investment Agency submitted quarterly and annual performance reports  to DOL. The quarterly performance reports contained information on the  number of program participants; the characteristics and demographics of  these participants; and the services provided under the Adult, Dislocated  Worker, and Youth programs, including job search assistance, career  counseling, and occupational skills training. These programs were  implemented on a program year basis, which for program year 2015  began on July 1, 2015, and ended on June 30, 2016. See app. IX for  program year 2015 performance measures and negotiated and actual  levels of performance reported by the CNMI Department of Labor.
Table 7 presents annual data, as reported by the CNMI’s Workforce  Investment Agency to DOL, on the number of individuals who received  services under the Adult, Dislocated Worker, and Youth programs in each  of the last 4 program years. It also presents funding data as reported by  DOL.
section_title: DOI Provides Technical Assistance to the CNMI Department of Labor
paragraphs: In September 2016, DOI approved a $200,000 grant to create a team of  labor certification technicians and a statistician at the CNMI Department  of Labor to help collect, compile, and analyze data on the CW program,  according to DOI. Through the grant, DOI’s Office of Insular Affairs  Technical Assistance Program, seeks to enable the CNMI to obtain  information on job categories currently held by CW-1 workers and monitor  losses and gains in particular job fields. Recognizing that the CNMI is in  transition and working to build a stronger U.S.-citizen workforce, the grant  is also meant to help the CNMI develop a strategic plan to provide real- time data on the most in-demand job fields and other information needed  by decision makers for allocating training and workforce development  resources. Under the grant’s terms, the CNMI government is expected  deliver all required elements by the end of fiscal year 2018.
section_title: Recently Completed 902 Consultative Process Resulted in Recommendations to Congress and DHS
paragraphs: On October 2, 2015, and again on January 4, 2016, the prior and current  CNMI Governors sent letters to President Obama requesting that he  initiate consultations under section 902 of the Covenant to consider two  issues affecting the relationship of the CNMI with the federal  government. The first issue involved immigration and labor matters  affecting the growth potential of the CNMI economy, and the second  issue concerned proposed and ongoing military activities in the CNMI.  In May 2016, President Obama designated the DOI Assistant Secretary  for Insular Areas as the Special Representative for the United States for  902 Consultations. The CNMI Governor was designated the Special  Representative for the CNMI. In December 2016, after 8 months of official  consultations, informal discussions, and site visits to locations in the  CNMI, the Special Representatives transmitted a report to the President  that included six recommendations on immigration and labor matters.  These recommendations included proposals for legislative amendments,  regulatory changes, or DHS actions. On January 17, 2017, the report was  submitted to Congress, marking the first known time a 902 Report has  been submitted to Congress since the U.S.–CNMI Covenant was fully  implemented in 1986, according to DOI. The report’s recommendations  were as follows:  1.  Extending the CW program beyond 2019 and other amendments,  such as raising the CW-1 cap and restoring the executive branch’s  authority to extend the CW program. According to the report, Public  Law 113-235 repealed the U.S. Secretary of Labor’s authority to  extend the transition period beyond 2019. The report states that the  CNMI seeks to extend the transition period by 10 years from  December 31, 2019, to December 31, 2029; to allow the Secretary of  Labor to grant a 5-year extension past this date; and to increase the  numerical limit of CW-1 visas from 12,998 to 18,000 per fiscal year.
The Special Representatives support an extension of the transition  period, restoring extension authority, and raising the CW-1 cap.  2.  Providing permanent status for long-term guest workers. The Special  Representatives support congressional action to make long-term  guest workers and their families with significant equities in the CNMI  eligible for lawful permanent resident status with a path to citizenship.  According to the report, it is the CNMI’s position that long-term guest  workers, through their continued presence and contributions to the  CNMI, are intertwined with the economic development and growth of  the commonwealth. However, these individuals have no path to lawful  permanent residence, according to the report. The report states that  the CNMI would like to recognize their important contributions to a  place many consider home, in some cases for more than 20 years, by  offering them a path to lawful permanent residence.  3.  Soliciting input on suggested regulatory changes to the CW program.  According to the report, the CNMI’s position is that DHS’s “first-come,  first-served” application system for CW-1 permits has resulted in the  displacement of current and long-time CW-1 workers by new workers.  In addition, long-time guest workers who have built families, homes,  and lives in the CNMI are unprotected and are not given priority within  the overall numerical allocation of CW-1 permits. The CNMI’s position  is that its Department of Labor should have a role in determining what  employers should be deemed eligible to sponsor foreign labor workers  under the CW program. For these reasons, the CNMI suggested  several regulatory changes that DHS could implement, such as  prioritizing renewals of CW-1 permits over new CW-1 applications,  establishing a separate numerical allocation for long-term CW-1  workers, and partnering with the CNMI on the distribution and  allocation of available permits. The Special Representatives  recommend that DHS publish a Request for Information to solicit input  from a variety of parties on various regulatory changes, including  those proposed by the CNMI.  4.  Considering immigration policies to address regional labor shortages.
According to the report, the CNMI believes that many of the newer  CW-1 applications are for Chinese construction workers, and a CW  system with a disproportionate allocation of permits for construction  workers could hamper the development of its service sector. For this  reason, according to the report, the CNMI calls for making Chinese  nationals eligible for H-2B visas for work performed in the CNMI. In  addition, because of the special needs of the region, the CNMI calls  for amending U.S. immigration laws to create additional Guam or  CNMI-Only nonimmigrant visa categories for which current law does  not provide. Finally, because of its geographic distance from Hawaii  and the U.S. continent, and its location in the Asia-Pacific region, the  CNMI calls for new legislation to expand the current Guam and CNMI- Only Visa Waiver Program, which allows eligible visitors from  designated countries to travel to the CNMI for business or pleasure for  up to 45 days without standard federal visa documentation. The  Special Representatives support Congress’s consideration of  extending and expanding existing immigration policies or developing  new policies to address systemic regional workforce challenges  currently being experienced in both Guam and the CNMI.  5.  Extending eligibility to the CNMI for additional federal workforce  development programs. According to the report, unlike the CNMI,  several U.S. states, the District of Columbia, the Commonwealth of  Puerto Rico, Guam, and the U.S. Virgin Islands are eligible to receive  grants to provide for the employment services authorized under the  Wagner-Peyser Act. Extending this program to the CNMI (and  American Samoa) would ensure that all the territories are treated  equally, according to the CNMI. The Special Representatives  recommend that DOI’s Office of Insular Affairs work cooperatively with  DOL to extend the Wagner-Peyser Act to the CNMI.  6.  Establishing a cooperative working relationship between DHS and the  CNMI. According to the report, in recent years, the CNMI Department  of Labor has filed Freedom of Information Act requests to obtain  information regarding the approved CW-1 permit holders and would  like an easier DHS process for obtaining data from USCIS on the CW  program. According to the CNMI’s Secretary of Labor, the CNMI  Department of Labor has a very good working relationship with DHS  but could benefit from more coordination on data inquiries. The  Special Representatives recommend that DHS and the CNMI work  cooperatively to exchange information and continue existing efforts to  educate employers about applying for alternative nonimmigrant visas  in place of the CW-1 visa when appropriate.
The U.S. Secretary of Homeland Security has the discretion under current  law to implement the two recommendations directed at DHS, according to  DHS’s Acting Deputy Chief Counsel. However, he noted that  implementing the other recommendations could require enacting new  legislation. DOI’s Office of Insular Affairs will, as appropriate, consult with  DHS and Congress regarding implementation of the 902 Report  recommendations, according to the Acting Assistant Secretary. Table 8  lists the Special Representatives’ six recommendations and summarizes  proposed next steps toward implementing them that could be taken.
On January 30, 2017, the House of Representatives passed The  Northern Mariana Islands Economic Expansion Act (H.R. 339), which  relates to recommendation 1. The bill, which has been referred to the  Senate Committee on Energy and Natural Resources, was introduced by  Congressman Sablan of the CNMI on January 5, 2017. The bill would  amend Public Law 94-241 to increase the number of CW-1 permits to  15,000 in 2017 and, among other things, would exclude certain  construction occupations from eligibility for new CW-1 permits and  increase the CW-1 vocational education fee from $150 to $200. On April  27, 2017, the Senate Energy and Natural Resources Committee held a  hearing to discuss this bill.
section_title: Agency Comments
paragraphs: We provided a draft of this report for review and comment to DOC, DHS,  DOI, and DOL as well as to the CNMI government. We received technical  comments from DOC, DHS, and DOL, which we incorporated as  appropriate. We also received written comments from the CNMI  Governor. In his letter the Governor stated that the report provides crucial  data on the CNMI’s progress toward expanding the domestic workforce in  line with the mandates of Public Law 110-229. He further stated that the  report contains key implications for federal and Commonwealth policy  makers to consider. The Governors letter is reprinted in appendix X.
We are sending copies of this report to the appropriate congressional  committees, the Governor of the CNMI, the Secretary of Commerce, the  Secretary of Homeland Security, the Secretary of the Interior, the  Secretary of Labor, and other interested parties. In addition, this report is  available at no charge on the GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  David Gootnick at (202) 512-3149 or gootnickd@gao.gov or Oliver  Richard at (202) 512-8424 or richardo@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix XI.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to examine (1) changes in the Commonwealth of the  Northern Mariana Islands’ (CNMI) labor market since the federally  mandated minimum wage increases began, (2) the potential economic  impact of reducing the number of foreign workers to zero, and (3) federal  and CNMI efforts to address labor force challenges.
For all three objectives, we obtained and analyzed agency data and  documents and interviewed officials at the U.S. Departments of  Commerce (DOC), Homeland Security (DHS), the Interior (DOI), and  Labor (DOL) in Washington, D.C.; San Francisco, California; and  Honolulu, Hawaii. In November and December 2016, we conducted  fieldwork in Saipan, Tinian, and Rota, CNMI, where we interviewed the  CNMI Governor, the Mayors of Tinian and Rota, and the CNMI  Secretaries of Commerce, Finance, and Labor. We also conducted  discussion groups and semistructured interviews with selected  employers, CW-1 workers, U.S. workers currently employed by CNMI  businesses, and students or graduates of the CNMI’s job training  programs. We worked with organizations in the CNMI whose officials we  had interviewed prior to our arrival in order to schedule the discussion  group sessions, recruit session participants, and obtain space for holding  the sessions. For example, we asked the Saipan Chamber of Commerce,  Tinian Chamber of Commerce, and the Rota Department of Commerce to  help us schedule discussion groups with representatives of various local  businesses. Similarly, we asked the Hotel Association of the Northern  Mariana Islands to help us schedule semistructured interviews with  selected hotel executives.
For background, we described the CNMI’s geography, its history, and its  political relationship with the United States by reviewing U.S. and CNMI  laws, DHS regulations and documents, previous GAO reports, the U.S.  Census Bureau’s decennial census for the CNMI, and estimates of the  CNMI’s gross domestic product (GDP) published by DOC’s Bureau of  Economic Analysis. All GDP levels were adjusted for inflation to 2015  dollars. We also analyzed visitor arrival data gathered by the Marianas  Visitor Authority from customs declarations forms for fiscal years 1990  through 2016, which we deemed sufficiently reliable for our purposes. We  also obtained and analyzed DHS’s U.S. Customs and Border Protection  (CBP) data on airport admissions at the Saipan and Rota airports from  2010 through 2016 to understand the number of travelers granted parole.  Despite delays in CBP’s processing of the CNMI’s airport admissions  data and CBP officers’ gradual adherence to new operational guidance,  we determined that CBP data were reliable for our purposes by  interviewing CBP data analysts and obtaining answers to our data  reliability questions. Finally, we analyzed 2003–2015 data provided by the  Hotel Association of the Northern Mariana Islands on hotel occupancy  and room rates and adjusted those rates to 2015 prices based on  inflation.
To evaluate changes in the CNMI’s labor market since the federally  mandated minimum wage increases began, we (1) analyzed overall  employment data for all domestic and foreign workers in the CNMI,  (2) estimated inflation adjusted average earnings, (3) determined the  industries and occupations with the highest numbers of CNMI workers  affected by the current and scheduled minimum wage increases, and  (4) obtained employers’ and employees’ opinions about the minimum  wage increases.
To analyze overall employment in the CNMI, we relied on tax data  provided by the CNMI’s Department of Finance for calendar years  2001 to 2015 for citizens and noncitizens. We defined citizens as  domestic workers, or anyone that did not require a visa for  employment in the CNMI, including citizens of the United States, the  CNMI, and the freely associated states (Federated States of  Micronesia, Republic of the Marshall Islands, and Republic of Palau).  All noncitizens or nondomestic workers were classified as foreign  workers. We used the same data source for three prior GAO reviews  of minimum wage changes in the CNMI. We also interviewed CNMI  officials who prepared the tax data to understand how the data were  prepared and any limitations. We reviewed the data to determine  consistency, identified fluctuations, and consulted with CNMI officials  to determine possible explanations for fluctuations. We determined  that the data were sufficiently reliable for our purposes.  Undocumented foreign workers were excluded from the scope of our  review.
To estimate inflation adjusted average earnings, we also relied on  CNMI tax data from 2003 through 2015, with counts of the number of  individuals in different ranges of earnings. To calculate mean wages  in the CNMI, we divided the total sum of earnings by the number of  workers with non-zero wages per calendar year from 2003 through  2015. All dollar values were adjusted to 2015 prices based on the  CNMI’s Consumer Price Index (CPI). Because the U.S. Bureau of  Labor Statistics collects CPI data on the 50 U.S. states but not the  CNMI, we relied on other sources of data to compare changes in  earnings or wage rates to changes in prices. We obtained historical  data on the CPI from the CNMI’s Department of Commerce. To  produce an annual CPI series, we analyzed quarterly CPI data from  the first quarter of 2003 to the fourth quarter of 2014 and averaged the  four quarters in each year. To obtain the CPI for 2015, which was not  available from the CNMI’s Department of Commerce, we followed a  methodology used by DOC’s Bureau of Economic Analysis that  applied Guam’s inflation rate to the CNMI. We also interviewed CNMI  officials responsible for producing the quarterly CPI estimates to  understand how the data were prepared and any limitations to the  data and concluded that the CPI data were sufficiently reliable for the  purposes of our review.
To determine the industries and occupations with the highest numbers  and percentages of CNMI foreign and domestic workers affected by  the current and scheduled minimum wage increases, we analyzed the  results of the CNMI’s 2014 Prevailing Wage Study; assumed all 2014  workers maintained employment; and projected the numbers and  percentages of workers directly affected by the scheduled 2016, 2017,  and 2018 wage increases. We restricted our analysis to scheduled  minimum wage increases, not those that could happen under possible  future legislation. We then determined the industries and occupations  with the largest numbers of workers directly affected by current and  scheduled wage increases by counting the number of hourly wage  workers in 2014 who earned less than or equal to the level of 2016,  2017, and 2018 minimum wage by industry and occupation. We  determined the data contained in the CNMI’s 2014 Prevailing Wage  Study to be sufficiently reliable for the purposes of our review by  interviewing CNMI officials who gathered and analyzed the original  data and obtaining answers to our data reliability questions.
To obtain local employers’ opinions about the minimum wage  increase, we reviewed results of a survey conducted in 2016 by the  Saipan Chamber of Commerce, gathered survey results, and  interviewed board members of the Saipan Chamber of Commerce.  We also facilitated four discussion groups and conducted seven  semistructured interviews with representatives of 42 employers  operating on Saipan, Tinian, and Rota in the CNMI. Discussion  groups were held with representatives of selected businesses in  Saipan, Tinian, and Rota, with groups ranging in size from 4 to 16  participants. Semistructured interviews were held with selected larger  employers in Saipan. During discussion groups and semistructured  interviews, we asked the same two questions about (1) the effect of  and business response to the federal minimum wage increase to  $6.55 in October 2016 and (2) the possible future effect of and  business response to the federal minimum wage increase to $7.25  scheduled to occur in October 2018. We selected a nonprobability  sample of employers for participation in our discussion groups and  semistructured interviews. Therefore, views reported by participants in  these groups may not be representative of those of all CNMI  employers and for that reason are not generalizable.
To evaluate the potential economic impact of reducing the number of  foreign workers in the CNMI to zero and replacing them with domestic  workers, we (1) developed an economic model that simulates how the  CNMI’s GDP would change if the number of CNMI-Only transitional  worker (CW-1) permits were reduced to zero, (2) evaluated the local  supply and demand for labor, and (3) obtained local employers’ and  employees’ opinions about the past and scheduled reduction in foreign  workers.
To develop an economic model that simulates how the CNMI’s GDP  would change if the number of CW-1 permits were reduced to zero,  we adapted an economic model that we used in a prior GAO report.  The model relied on assumptions regarding the substitutability  similarity of the domestic and foreign workforces. In this report, we  also relied on reports produced by the Bureau of Economic Analysis  on GDP in the CNMI from 2011 to 2015. We presented the change in  GDP based from its 2015 value. We examined the possible range of  effects from a reduction in foreign workers by calculating the effect on  GDP under a range of assumptions. Specifically, we simulated the  effect on GDP varying the assumptions regarding the ability of CNMI  domestic workers to substitute for foreign workers and the effect of a  reduction in labor (see app VI).To check this analysis, we developed  a separate analysis that examined the relationship between GDP and  the number of workers in the CNMI from 2002 to 2015. We found that  the two factors were indeed related but that relationships differed by  industry (see app V).
To evaluate the local supply and demand for labor in the CNMI, we  compared the annual number of CW-1 permits approved by DHS’s  U.S. Citizens and Immigration Services (USCIS) to the annual  numerical limit (or cap) of CW-1 permits set by USCIS from 2011 to  2016. Numbers of approved CW-1 permits are the number of  beneficiaries approved for each fiscal year cap, provided by DHS’s  Office of Performance and Quality, Performance Analysis and  External Reporting Branch, based on Form I-129CW petitions for  CNMI-Only nonimmigrant transitional workers, as of November 18,  2016. We analyzed the number of approved CW-1 permits by fiscal  year (2012 through 2016), month, country of birth, occupation, and tax  identification. We determined DHS/USCIS data to be sufficiently  reliable for our purposes. We also analyzed the gap between the local  supply and demand for labor in the CNMI by comparing the number of  approved CW-1 workers to the potential number people seeking  employment in 2016, based on a CNMI Behavioral Health Survey and  the number of high school and college graduates in 2016, as provided  by the CNMI’s Public School System. Additionally, we reviewed  expected labor requirements outlined by the CNMI’s Bureau of  Environmental and Coastal Quality as of December 20, 2016.
To obtain local employers and employees’ opinions about the past  and scheduled reductions in foreign workers, we conducted  discussion groups and semistructured interviews with 42 CNMI  employers and 70 workers. In the four discussion groups and seven  semistructured interviews with employers, we asked the same two  questions regarding reductions in foreign workers:  1.  How did reaching the numerical cap of CW-1 permits in May for  fiscal year 2016 and October for 2017 affect your business and  how did you respond?  2.  How do you think your business will be affected and will respond  by the end of the CW permit program, scheduled for December  31, 2019?
As indicated above, the discussion groups with selected employers  ranged in size from 4 to 16 participants. We also conducted eight  discussion groups with selected workers in Saipan. We conducted  separate discussions with four groups of 41 workers who held CW-1 visas  and four groups of 29 workers who were citizens or permanent residents  of the United States or the freely associated states. Discussion groups  with workers who held CW-1 visas ranged in size from 8 to 16  participants, while discussion groups with workers who were citizens or  permanent residents of the U.S. mainland or territories ranged in size  from 5 to 10 participants. In all discussion groups with workers, we asked  the same two questions regarding reductions in CW-1 workers:  1.  How did reaching the numerical cap of CW-1 permits in May for  fiscal year 2016 and October for 2017 affect your job?  2.  How do you think the end of the CW permit program, scheduled  for December 31, 2019, will affect your job in the future?
Participants in all employer and employee discussion groups were  selected using a nonprobability sampling approach. Therefore, the views  or experiences reported by individuals in these groups may not be  generalizable.
To evaluate federal and CNMI government efforts to address labor force  challenges, we (1) collected information about the CNMI’s three job  training programs supported by CW-1 vocational education fees, (2)  assessed the results of the CNMI’s two scholarship programs, (3)  examined employment programs offered by the CNMI’s Department of  Labor, (4) reviewed a grant agreement between DOI and the CNMI  government, and (5) summarized the results of the 902 consultative  process (902 Consultations) that resulted in a report to Congress with  several recommendations.
To collect information about the CNMI’s three job training programs,  we analyzed financial records showing CW-1 vocational education  fees that DHS transferred to the CNMI government in fiscal years  2012 through 2016. We also reviewed the CNMI government’s  financial records that showed allocations of CW-1 vocational  education fees to three education entities in the CNMI: Northern  Marianas College, Northern Marianas Trades Institute, and the  CNMI’s Public School System. We interviewed administrators of these  three entities and held discussions with groups of current or former  participants of their job training programs. A total of 38 people  participated in our three discussion groups, with groups ranging in  size from 10 to 16 participants. Participants were asked, among other  things, about the goals of the job training programs and their  expectations regarding the impact of the programs on them.  Participants in these groups represented nonprobability samples, and  therefore, the views and experiences they reported may not be  generalizable to all participants in CNMI job training programs. Last,  we reviewed a previous GAO report, an independent audit of the  Northern Marianas College for the period 2014 through 2015,and an  independent audit of the CNMI’s Public School System in 2015, the  most recent reports available.
To assess the results of the CNMI’s two scholarship programs, we  interviewed officials, gathered documentation, and analyzed data  provided by the CNMI’s Scholarship Office and the Saipan Higher  Education Financial Assistance Program, the two organizations that  provide funding to students to attend higher education and job training  programs. The Saipan Higher Education Financial Assistance  Program is supported by the Municipality of Saipan, Office of the  Mayor. We did not collect similar information about the scholarship  programs offered by the municipalities of Rota or Tinian.
To examine the employment programs offered by the CNMI’s  Department of Labor under the Workforce Investment Act of 1998  (WIA) and the Workforce Innovation and Opportunity Act (WIOA), we  interviewed the CNMI’s Secretary of Labor and case officers working  at the CNMI’s Workforce Investment Agency and officials from DOL’s  Employment and Training Administration. We also analyzed the  CNMI’s WIA performance data for program years 2012 through 2015.  We limited our scope to those program years because reporting  requirements changed in program year 2016, which began on July 1,  2016, as a result of the enactment of WIOA. We also reviewed  several GAO reports about WIA and WIOA and the CNMI’s 2016  WIOA state plan.
To review federal grants agreement between the U.S. and CNMI  governments, we interviewed officials and reviewed documents  provided by DOI and the CNMI Department of Labor.
To understand the results of the Consultations we reviewed section  902 of the U.S.–CNMI Covenant, and the report published as a  result of the process. We also interviewed CNMI government and  DOI and DHS officials who participated in the process.
section_title: Appendix II: Tourism Trends in the CNMI
paragraphs: Data from the Marianas Visitors Authority show that the downward trend  in the number of Japanese visitors to the Commonwealth of the Northern  Mariana Islands (CNMI) from 2013 through 2016 was offset by the growth  in visitors from China and South Korea. From fiscal years 2013 through  2016, the number of visitors from Japan dropped by 58 percent from  148,423 to 62,120 visitors. Meanwhile, the number of Chinese visitors  rose by 83 percent (112,570 to 206,538), and the number of South  Korean visitors rose by 48 percent (135,458 to 200,875), as shown in  figure 12. According to the U.S. Department of Homeland Security (DHS),  Chinese visitors are paroled into the CNMI under the department’s  discretionary parole authority, while eligible South Korean and Japanese  visitors enter the CNMI under the U.S. Visa Waiver Program.
With the increases in total annual visitor arrivals, hotel occupancy in the  CNMI has also risen in recent years. Data from the Hotel Association of  the Northern Mariana Islands, which in 2016 represented 12 CNMI hotels,  show that from 2011 through 2015, hotel occupancy rates for its member  hotels increased from 64 to 87 percent; at the same time, the yearly  average inflation adjusted room rate increased by 35 percent from $98 to  $133 per night (see fig. 13).
section_title: Appendix III: Foreign Worker Employment in the CNMI by Industry and Occupation
paragraphs: Table 9 shows the percentage of foreign workers and workers in the  Commonwealth of the Northern Mariana Islands (CNMI) in 2014 with  CNMI-Only transitional worker (CW-1) permits, by industry. Workers with  approved CW-1 permits are a subset of foreign workers. According to the  CNMI’s 2014 Prevailing Wage Study, which is based on a survey of  employers, about 90 percent of foreign workers had CW-1 permits. The  table is sorted with the highest percentage of foreign workers first. As the  table shows, (1) agriculture, forestry, fishing, and hunting; (2) other  services (except public administration); (3) construction; and  (4) accommodation and food services industries employed 80 percent or  more of non-U.S. citizens, or foreign workers. The public administration  industry—where citizenship is sometimes a requirement—has the lowest  percentage of non-U.S. citizens, with about 22 percent.
Table 10 shows the numbers and percentages of foreign workers and  workers with CW-1 permits by occupation in 2014. The table is sorted by  the percentage of foreign workers in each occupation, from highest to  lowest. As the table shows, production occupations, personal care and  service occupations, and building and constructions occupations had  percentages of foreign workers, almost 90 percent. On the other hand,  only about 40 percent of protective service occupations were made up of  foreign workers.
section_title: Appendix IV: Minimum Wage Increases in the CNMI by Industry and Occupation
paragraphs: As the minimum wage increases continue, they will affect a growing  percentage of hourly workers in the Commonwealth of the Northern  Mariana Islands. Table 11 shows the numbers and percentages of  workers directly affected by the most recent and future scheduled  minimum wage increases across different industries. Directly affected  workers are CNMI’s wage workers in 2014, assuming they maintained  employment, that would have been directly affected by the federally  mandated 2016–2018 wage increases. The table is sorted by industries  with the highest numbers of workers directly affected by the most recent  minimum wage increase first. As the table shows, the tourism related  industries, such as retail trade and accommodation and food services, are  likely to be more directly affected by the most recent and future scheduled  minimum wage increases. More than 6,000 (or approximately 77 percent)  of workers in these two industries have been directly affected by the most  recent minimum wage increase. The minimum wage increases are also  likely to have a large impact on the construction industry; these increases  have directly affected 79 percent of its workers. Public administration and  educational services are less likely to be directly affected by the current  and future minimum wage increases, with 9 and 14 percent of those  industries’ workers directly affected, respectively.
Similar to industries, certain occupations are also likely to be directly  affected more by minimum wage increases than others. Table 12 shows  the numbers and percentages of workers directly affected by the most  recent and future scheduled minimum wage increases across different  occupations. The table is sorted by occupations with the highest numbers  of workers directly affected by the most recent minimum wage increase  first. As the table shows, sales and related occupations and food  preparation and serving related occupations are most likely to be directly  affected by the most recent and future scheduled minimum wage  increases. More than 4,000 workers (or approximately 85 percent) of  workers in these two occupations are likely directly affected by the most  recent minimum wage increase. Building and grounds cleaning and  maintenance occupations, production occupations, and construction and  extraction occupations also are likely to experience relatively large  impacts from the most recent and future scheduled minimum wage  increases.
section_title: Appendix V: Technical Specifications of the Model for the CNMI Economy
paragraphs: To simulate the effect of a reduction in the number of foreign workers on  the Commonwealth of the Northern Mariana Islands (CNMI) economy, we  followed a similar approach as in an earlier GAO report that also analyzed  the economic effect of a reduction of foreign workers in the CNMI.  Specifically, to model the CNMI economy, we employed a standard  production function, the Cobb-Douglas, that we modified to allow for both  foreign and domestic workers.
Y = AK(&FW-p +(1-&)RW-p)-(1-)/p  In this model, Y is output, K is capital, A is a constant, FW is the foreign  workforce, and RW is the resident workforce. The parameters that control  both the substitutability and the factor shares of resident and foreign labor  are  and & In addition, the elasticity of output with respect to “total  workforce” is given by (1-).
We chose this function because it allowed us to vary assumptions about  the degree to which both foreign and domestic labor act as substitutes for  each other. In this model, the less often the foreign workers are close  substitutes for domestic workers, the greater the effect of any restriction  on foreign workers—because domestic workers are less able to step into  the roles occupied by foreign workers. Allowing the substitutability to be  less than perfect is consistent with a recent paper suggesting that even  when the education level and experience level of immigrant and  nonimmigrant workers are identical, they may not be perfect substitutes.
According to information from the CNMI’s Department of Commerce,  foreign and domestic workers have similar levels of education. For  example, about 20 percent of each group had a college education or  greater in 2014. However, there are stark differences between the two  groups in pay. The average wage for a CNMI-Only transitional worker  (CW-1) visa holder in 2014 was $7.54, about 69 percent of the average  wage of domestic workers, at $10.94.
We chose parameters for the model by examining research in this area  and available data. For example, we simulated the effect of greater or  less “substitutability.” However, because of the extent of uncertainty, we  purposely allowed the parameters to have large ranges. We assumed  that capital and technology remained constant. See table 13 for the  parameters and inputs used in our analysis.
Determining the number of CW-1 workers required that we combine  different data sets, which introduced a potential source of error. As a  check on our results, we also ran simulations with different estimates of  the CW-1 workers. We found that making different assumptions about the  number of CW-1 workers affected our estimates but did not affect the  overall message.
We ran a simulation in which the number of CW-1 workers was  assumed to be 9,715, based on the number of CW-1 permits  approved by the U.S. Citizenship and Immigration Services in fiscal  year 2015. We found that making this change caused the range of  gross domestic product (GDP) reduction to change, from 26 to 62  percent under the assumption of 11,370 CW-1 workers to 22 to 45  percent under the assumption of 9,715 CW-1 workers.
We addressed the possibility that the percentage of visa holders with  CW-1 permits, which we based on the CNMI prevailing wage study,  might be too low. Specifically, we ran a simulation in which we  assumed that the 641 workers from the freely associated states  (Federated States of Micronesia, Republic of the Marshall Islands,  and Republic of Palau) in the prevailing wage study were incorrectly  coded as non-CW-1 visa holders, instead of not requiring a visa at all.  This possibility was noted in the methodology section of the prevailing  wage study. Making this change increased the number of CW-1  workers to 11,816. This led to a range of simulation results of 28  percent to 68 percent GDP reduction.
section_title: Appendix VI: Relationship between Number of Workers and Size of the CNMI Economy
paragraphs: We used the limited data available to produce an estimate of the  relationship between gross domestic product (GDP) in the  Commonwealth of the Northern Mariana Islands (CNMI) and the number  of workers in the CNMI workforce. We relied on data from two sources.  For the number of workers, we used data from the CNMI tax system. For  information on the size of the economy (GDP), we used the most recent  data available from the U.S. Department of Commerce’s Bureau of  Economic Analysis (BEA). BEA has reported data on GDP in CNMI from  2002 to 2015.
From 2002 to 2015, the CNMI’s inflation adjusted GDP fell from $1.47  billion to $814 million, according to BEA, a decline of 45 percent. The  decline in GDP reflects the departure of the garment industry. Over this  same period, CNMI tax data show that the number of total workers fell  from 50,436 to 25,307—a decline of about 50 percent—accounted for  almost entirely by the reduction of foreign workers.
Because of the lack of other relevant data, our analysis has important  limitations. First, it attributes all of the change in GDP to changes in labor  and assumes that nothing else in the CNMI changed over this period. It is  possible, however, that capital in the island also diminished as labor left,  since machinery may have been removed from the island and vacant  factories may have been depreciated. Second, the change in GDP also  could be attributed to the changes in the global economy, as well as other  factors, which are not accounted for in the statistical model.
Given these limitations, we employed a simple linear regression model,  where the dependent variables were the natural log of GDP (presented in  fig. 14) against the natural log of the number of workers (presented in  table 12) and a constant. We used the natural log because that allowed  us to interpret the coefficients as an elasticity. We estimated a coefficient  of 0.83 that implies that for every 10 percent decrease in the number of  workers, there is a decline in GDP of about 8 percent, on average, with  the elasticity interpretation. We also ran a version of this regression with a  linear time trend. Including a linear time trend yielded a similar estimated  relationship between GDP and the number of workers. Figure 14 shows  the relationship between these two variables as a scatter plot.
In a separate analysis, however, we found that the relationship between  GDP and the number of workers differed by industry, which further  indicates the degree of uncertainty, and shows that the experience of the  garment industry may not be generalizable. We determined this  relationship was inconsistent across different industries using data on  GDP from BEA by comparing GDP with the number of workers in each  industry. However, because of a data limitation, we measured the number  of workers not by the number of unique Social Security numbers but by  the number of W-2 wage and tax statement forms filed by CNMI  employers. A single person can have W-2 forms at multiple employers if  he or she holds multiple positions. In addition, GDP by industry is  available through 2014 rather than 2015. Because of the inconsistency  between industries and the limitations described above, we applied a  simulation method to project the effect of reducing the number of CNMI- Only transitional worker permits in the following appendix.
section_title: Appendix VII: Descriptions and Numbers of Foreign Workers Approved in the CNMI, by Permit Type, Fiscal Years 2011–2016
paragraphs: Although the majority of foreign workers approved by the U.S.  Department of Homeland Security (DHS) in the Commonwealth of the  Northern Mariana Islands (CNMI) have CNMI-Only transitional worker  (CW-1) permits, DHS also approves other types of permits for foreign  workers in the CNMI (see table 14).
section_title: Appendix VIII: Planned Infrastructure Development Projects in the CNMI, 2015– 2019
paragraphs: The Commonwealth of the Northern Mariana Islands (CNMI) Bureau of  Environmental and Coastal Quality compiles data from permit  applications submitted by developers or their consultants to the CNMI  government. These data sets include impacts on infrastructure and  workforce needs, among other topics, and are typically incorporated in  their Environmental Impact Assessments. The bureau only gathers  projected workforce needs for developments—such as resorts or housing  developments—that have submitted permit applications to the CNMI  government or have made their proposed plans public. These proposed  developments are in various stages of planning, permitting, construction,  or operation. Table 15 includes all proposed CNMI projects to begin  construction from 2015 to 2019 that have the potential to directly and  significantly affect the CNMI’s coastal resources and therefore require  zoning permits. Eight of the 22 projects—indicated by the table’s shaded  rows—are for hotels, resorts, or casinos that together account for 97  percent (7,846) of the estimated total 8,124 employees needed for  operation.
section_title: Appendix IX: Workforce Investment Act Performance Measures Reported by the CNMI Government for Program Year 2015
paragraphs: For program years 2012 through 2015, the Workforce Investment Act  (WIA) required grant recipients (1) to use performance measures that  gauged outcomes for program participants in the areas of employment,  employment retention, and earnings and (2) to negotiate performance  levels for each performance measure with the U.S. Department of Labor  (DOL). As shown in table 16, the Commonwealth of the Northern  Mariana Islands (CNMI) met the negotiated performance levels for two of  the nine performance measures in program year 2015. While DOL  officials told us that recipients of WIA and Workforce Innovation and  Opportunity Act (WIOA) grants are generally required to meet negotiated  performance levels in order to receive their full funding allocations,  officials said that they do not apply financial sanctions to the CNMI and  other outlying areas.
DOL officials noted that the CNMI did not always submit its quarterly and  annual performance data on time. They also stated that the CNMI did not  use DOL’s electronic performance reporting system, in part because of  limitations in the CNMI’s physical infrastructure. DOL officials said that  they have had concerns about the reliability of the performance data  submitted by the CNMI, which they have addressed by offering technical  assistance sessions at annual regional meetings and through e-mails and  conference calls with CNMI Department of Labor officials. In addition, the  DOL grant manager visited the CNMI in March 2015 to provide technical  assistance on a variety of grant management and performance topics.
section_title: Appendix X – Comments from the Government of the CNMI
section_title: Appendix XI: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the contacts named above, Emil Friberg (Assistant  Director), Julia Ann Roberts (Analyst-in-Charge), Sada Aksartova, David  Blanding, Benjamin Bolitzer, and Moon Parks made key contributions to  this report. Caitlin Croake, David Dayton, Neil Doherty, Mary Moutsos,  and Alexander Welsh provided technical assistance.
section_title: Related GAO Products
paragraphs: American Samoa: Alternatives for Raising Minimum Wages to Keep Pace  with the Cost of Living and Reach the Federal Level. GAO-17-83.  Washington, D.C.: December 2, 2016.
American Samoa and the Commonwealth of the Northern Mariana  Islands: Economic Indicators Since Minimum Wage Increases Began.  GAO-14-381. Washington, D.C.: March 31, 2014.
Commonwealth of the Northern Mariana Islands: Additional DHS Actions  Needed on Foreign Worker Permit Program. GAO-12-975. Washington,  D.C.: September 27, 2012.
Compacts of Free Association: Improvements Needed to Assess and  Address Growing Migration. GAO-12-64. Washington, D.C.: November  14, 2011.
Commonwealth of the Northern Mariana Islands: Status of Transition to  Federal Immigration Law. GAO-11-805T. Washington, D.C.: July 14,  2011.
American Samoa and Commonwealth of the Northern Mariana Islands:  Employment, Earnings, and Status of Key Industries Since Minimum  Wage Increases Began. GAO-11-427. Washington, D.C.: June 23, 2011.
Commonwealth of the Northern Mariana Islands: DHS Should Conclude  Negotiations and Finalize Regulations to Implement Federal Immigration  Law. GAO-10-553. Washington, D.C.: May 7, 2010.
American Samoa and Commonwealth of the Northern Mariana Islands:  Wages, Employment, Employer Actions, Earnings, and Worker Views  Since Minimum Wage Increases Began. GAO-10-333. Washington, D.C.:  April 8, 2010.
Commonwealth of the Northern Mariana Islands: Managing Potential  Economic Impact of Applying U.S. Immigration Law Requires  Coordinated Federal Decisions and Additional Data. GAO-08-791.  Washington, D.C.: August 4, 2008.