Commonwealth of the Northern Mariana Islands: Recent Economic and Workforce Trends
Released: 2020-02-13T00:00:00

Letter

Background CNMI Geography, Population, and the 2018 Typhoon

Part of the Mariana Islands Archipelago, the CNMI—one of five U.S. territories—consists of 14 islands in the western Pacific Ocean, just north of Guam and about 3,200 miles west of Hawaii. In 2018, the CNMI had an estimated total population of 51,994, according to the U.S. Census Bureau. According to the CNMI’s 2016 Household, Income, and Expenditures Survey, 89 percent of the population lived on the island of Saipan, with an additional 6 percent on the island of Tinian and 5 percent on the island of Rota (see fig. 1).

On October 24, 2018, Super Typhoon Yutu made landfall in the CNMI causing widespread damage to the islands. Saipan, Tinian, and Rota experienced heavy rainfall and extremely high winds, which caused damage to homes, businesses, and critical infrastructure. The typhoon severely damaged utility infrastructure on all three islands, including downed power lines, transformers, and poles, which caused power outages across all the islands (see fig. 2). Damage from Yutu also closed the Saipan International Airport, which was unable to restore full flight services until March 2019, according to the Marianas Visitors Authority.

U.S.-CNMI Relations

The United States captured 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 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 some 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.

Application of Federal Immigration Law to the CNMI

In 2008, the CNRA amended the joint resolution approving the U.S.– CNMI covenant to apply federal immigration law to the CNMI, with a transition period for foreign workers that would end on December 31, 2014, unless extended by the U.S. Secretary of Labor. 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, DHS, through USCIS, established the CW-1 program in 2011. The transition period was previously extended through December 31, 2019, under the Consolidated and Further Continuing Appropriations Act, 2015. Through the program, employers petition for nonimmigrant CW-1 permits that allow foreign workers who meet certain requirements to work temporarily in the CNMI.

Since 2008, Congress has amended the CNRA several times, with provisions that affected the length of the transition period, the number of CW-1 permits allocated, and the distribution of permits. The CNRA, as amended by the Northern Mariana Islands U.S. Workforce Act of 2018, extends the CW-1 program through December 31, 2029, defines the number of permits DHS may issue annually, and reduces that number each year until the end of the transition period. In addition, the Northern Mariana Islands Long-Term Legal Residents Relief Act of June 2019 established a new category of long-term residents in the CNMI, assuming they met certain qualifications (see table 1).

Figure 3 shows the numerical limits on CW-1 permits established by DHS and the numerical limits for permits specified in the Northern Mariana Islands U.S. Workforce Act of 2018. The limits shown are the maximum number of permits available for each fiscal year through the end of the transition period and may not reflect the number of permits for which employers would petition and that DHS would approve.

Trends in the CNMI Economy The CNMI Economy Grew between 2012 and 2017, but Declined in 2018

The CNMI’s GDP, adjusted for inflation, grew every year from 2012 to 2017, but declined in 2018, according to BEA. GDP, in 2018 inflation- adjusted dollars, grew from $1.022 billion in 2015, to $1.311 billion in 2016, and to $1.646 billion in 2017, before contracting to $1.323 billion in 2018. See figure 4 below for CNMI inflation-adjusted gross domestic product over this time.

BEA estimates that the CNMI’s GDP, adjusted for inflation, increased by 28.4 percent in 2016 and by 25.5 percent in 2017 (see fig. 5). BEA attributes this economic growth to exports of services, which reflected continued growth in visitor spending, particularly for casino gambling. In 2018, inflation-adjusted GDP fell by 20 percent, which reflected decreases in exports of services and private fixed investment. According to BEA, exports of services decreased 39 percent, due to a drop in visitor spending, in particular spending on casino gambling where revenues fell over 50 percent in 2018.

The CNMI Economy Increasingly Relies on Tourism, but the Casino Operation Faces Challenges Accommodations and Amusement Was 45 Percent of CNMI GDP in 2017

BEA data on the value added to GDP by individual industries show the change in the composition of the CNMI economy as accommodations and amusement became the largest component of the economy and garment manufacturing declined. In particular:

From 2007 to 2017, the contribution to GDP by accommodations and amusement, which partially includes the tourism sector, grew from less than 12 percent to 45 percent.

From 2007 to 2017, the contribution to GDP by manufacturing declined from 19 percent to 1 percent, according to BEA. This reflects the decline of the garment manufacturing industry.

Between 2007 and 2017, the contribution to GDP by government declined from about 24 percent to 16 percent of GDP.

See figure 6 for value added by industry as a percentage of CNMI GDP.

CNMI Visitor Arrivals Declined in Fiscal Years 2018 and 2019

Following a period of growth in visitor arrivals—from about 338,000 in fiscal year 2011 to more than 653,000 in fiscal year 2017—visitor arrivals dropped in fiscal year 2018 to about 607,000 and in fiscal year 2019 to less than 425,000 (see fig. 7). According to BEA, the decline in visitors in early fiscal year 2019 was attributable to Super Typhoon Yutu, which devastated the CNMI in October 2018.

In November 2018, following Super Typhoon Yutu, visitor arrivals in the CNMI plummeted from the previous month’s total of 32,108 to 5,595. This drop also represented an 88 percent decline from November 2017, when 48,039 visitors arrived in the CNMI. See figure 8 below, which compares monthly visitor arrivals for fiscal years 2018 and 2019, which started on October 1, 2017 and October 1, 2018, respectively.

The composition of visitors by country of residence has also significantly shifted since 2005. Data from the Marianas Visitors Authority show that the decline in Japanese arrivals from fiscal years 2005 to 2019 was offset by the increase in arrivals from China and South Korea (see fig. 9). In particular, Japanese arrivals declined from about 376,000 in 2005 (71 percent of total visitors) to about 12,000 in 2019 (3 percent).

South Korean arrivals increased from about 65,000 in 2005 (12 percent) to about 192,000 in 2019 (45 percent).

Chinese arrivals increased from about 32,000 in 2005 (6 percent) to 186,000 in 2019 (44 percent).

While eligible Japanese and South Korean visitors enter the CNMI under a visa waiver program, Chinese visitors are ineligible for the program but can remain temporarily 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. U.S. Customs and Border Protection, a DHS component, recently announced a reduction in the length of stay for Chinese citizens from 45 to 14 days for their entry into the CNMI under discretionary parole. CNMI’s Comprehensive Economic Development Strategy 2019 Update indicates that visa-free access to Chinese visitors serves as the linchpin for the CNMI casino investment.

On January 29, 2020, the Governor of the CNMI issued an executive order that declared a state of significant emergency in the Commonwealth related to the spread of the coronavirus from China. Among other measures, the Governor suspended the arrival of travelers from mainland China for a period of 30 days. The Governor also directed the CNMI Secretary of Finance and the CNMI Office of Management and Budget to undertake a cost-impact analysis on the effects the ban will have on the economy.

CNMI Licensed Casino Development on Two Islands, but Operations Have Faced Challenges

Within the tourism sector, the CNMI government has provided for the licensing of casinos on Tinian and Saipan, but both casinos have faced challenges.

Tinian: Tinian Dynasty Hotel and Casino was established in 1998 to boost economic development. In operation for over a decade, the casino was investigated and cited by several federal agencies and closed in 2015. Most recently, following an Internal Revenue Service investigation, the U.S. Department of Justice filed a criminal complaint against the casino operator and two individuals on April 19, 2013, alleging that between September 2009 and April 2013 the casino failed to file reports on currency transactions greater than $10,000, and engaged in a pattern of accommodating gamblers in conducting transactions greater than $10,000. The U.S. Department of Treasury Financial Crimes Enforcement Network reported on June 3, 2015, that it had assessed a $75 million civil money penalty against the casino operator for willful and egregious violations of the Bank Secrecy Act.

Saipan: In March 2014, while needing a new revenue source to fund government policies, such as a generous government retirement program, the CNMI government passed a public law that authorized and established an exclusive casino license in Saipan, which was awarded to Imperial Pacific International Holdings of Hong Kong. The operator began construction of a casino and hotel complex originally scheduled for completion no later than 36 months from the date of the casino license, or by August 2017. After facing construction challenges, the CNMI Casino Commission approved delays in the completion schedule. The new casino opened for business on July 6, 2017. As of August 2019, the casino was operating, but hotel construction had not progressed beyond the structural frame and a partial facade. According to a casino representative, labor shortages and Super Typhoon Yutu have delayed construction. Figure 10 shows the casino and hotel tower in August 2019.

Several federal agencies have investigated and cited the casino operator and its construction contractors. The casino operator and its contractors have been fined for unfair labor practices:

On May 30, 2017, the U.S. Department of Labor’s Occupation Safety and Health Administration reported proposed penalties of $193,750 against three contractors that exposed workers to numerous workplace hazards at the casino site in Saipan.

On March 5, 2018, the U.S. Department of Labor announced it had finalized a series of settlements with contractors that would pay $13.9 million in back wages and damages to thousands of Chinese employees who had come to build the Saipan casino and hotel.

On April 25, 2019, the U.S. Department of Labor announced it had secured a $3.3 million consent judgment against the casino’s developer for minimum wage, overtime, and recordkeeping violations of the Fair Labor Standards Act.

On September 24, 2019, the U.S. Equal Employment Opportunity Commission filed suit against the casino, alleging the casino operator had violated federal law by subjecting female employees to sexual harassment, other sex-based discrimination, and retaliation.

Financial reporting from the casino operator in 2019 included warnings about losses in 2018 and 2019. Specifically:

On April 29, 2019, the casino operator released its 2018 Annual Report. In this report, independent auditors found that the casino operator had incurred a net loss of almost $3 billion in Hong Kong dollars, or about $379 million in US dollars, and had accumulated current liabilities greater than this amount, for calendar year 2018. The auditors concluded that these conditions, along with others noted in the report, indicate the existence of a material uncertainty, which may cast significant doubt on the operator’s ability to continue in business.

On August 9, 2019, the casino operator issued a warning to shareholders and potential investors that it expected to record a loss for the first 6 months of 2019 as compared to a profit for the same period in 2018.

On August 30, 2019, the casino operator released its 2019 Interim Report. An independent auditor noted that during the 6-month period ending June 30, 2019, the casino operator incurred a net loss of almost $1.9 billion Hong Kong dollars, or more than $240 million in U.S. dollars. The auditor included the same warning of a material uncertainty reported in the 2018 Annual Report.

On November 7, 2019, the casino operator posted an announcement to the Hong Kong Stock Exchange that it had assisted in an investigation at the request of local enforcement authorities, and provided relevant information and documents as required by the enforcement authorities.

Trends in CNMI Workforce The Ratio of United States to Foreign Workers in the CNMI Has Remained Close to 50 Percent from 2014 to 2018

Between 2014 and 2018, the ratio of United States to foreign workers in the CNMI remained close to 50 percent, according to CNMI Department of Finance tax data that identified the citizenship of workers. In 2018, United States workers constituted 49 percent of the workforce. These workers included U.S. citizens and nationals, and citizens from the Freely Associated States—the Federated States of Micronesia, the Republic of the Marshall Islands, and the Republic of Palau. The size of the CNMI workforce grew every year from 2014 through 2017 before contracting by about 2,000 workers, or 5.6 percent, in 2018, according to CNMI tax data. While the ratio between United States workers and foreign workers has remained steady over the past 5 years, the number and share of foreign workers in the overall CNMI workforce fell significantly from 2001 through 2018. Over this same period, the number of United States workers remained more stable, dropping from about 15,500 workers in 2001, to about 13,700 workers in 2018, or a 12 percent decline in total United States workers. United States workers represented 30 percent of the workforce in 2001 and 49 percent in 2018 (see fig. 11).

On 2018 tax forms, the CNMI government started collecting information from employers on workers’ visa type, in response to the Northern Mariana Islands U.S. Workforce Act of 2018. According to a CNMI government report, the new information will help identify workers lawfully admitted for permanent residence. However, about one-third of the 2018 CNMI tax forms collected did not include information on the worker’s visa type. According to the report, the missing data may be attributed to the new reporting procedure for the 2018 tax form. The report indicated that after Super Typhoon Yutu devastated the islands of Saipan and Tinian, there was very little time to adequately inform and prepare employers of the new procedure for the tax form before the end of tax year 2018. Although the CNMI Department of Labor conducted a training presentation in December 2018, not all employers attended and so were unaware of the new procedure.

Approved CW-1 Permits Rose for Fiscal Year 2019, after Falling for Fiscal Years 2017 and 2018

Numbers of Approved CW-1 Permits Rose for FY 2019

The overall number of approved CW-1 permits fell from a high of 13,581 for fiscal year 2016 to 9,016 for fiscal year 2018. The number of approved permits rose by 23 percent for fiscal year 2019 to 11,093. However, the number of approved CW-1 permits for 2019 was about 2,000 below the updated 2019 cap established in 2018. As figure 12 shows, the number of CW-1 permits approved by USCIS for fiscal years 2012 to 2015 remained well under the annual numerical limits and exceeded or neared those limits for fiscal years 2016 through 2018.

Most CW-1 Permit Holders Were Born in the Philippines or China and Most Commonly Worked in Building or Food Services in Fiscal Year 2019

According to USCIS data, most individuals with approved CW-1 permits for fiscal year 2019 were born in the Philippines or China. In addition, as table 2 shows, the number of permits approved for workers born in China was four times higher for fiscal years 2016 and 2017 than for fiscal year 2015, although that number fell by more than half for fiscal year 2018. As we reported in 2017, firms involved in building the casino in Saipan have primarily employed Chinese workers.

CW-1 permit data for fiscal year 2019 show that the CW-1 permit holders most commonly worked in building service or food service. See table 3 for the top 10 occupations for CW-1 permits for 2015 through 2019 based on 2019’s top 10 occupations.

Construction Worker Constraints Continue

In 2017, Congress amended the CNRA to, among other things, restrict future CW-1 permits for workers in construction and extraction occupations (as defined in the U.S. Department of Labor’s Standard Occupational Classification system) to allow extensions only of those permits first issued before October 1, 2015. This restriction was later modified in 2018 to only allow permits for construction and extraction occupations to be issued for those who qualified as long-term workers, those being workers who were admitted as CW-1 workers during fiscal year 2015 and during every subsequent fiscal year beginning before July 24, 2018. The number of CW-1 permits for construction trades fell from 3,119 for fiscal year 2017 to 347 for fiscal year 2019 (see table 3 above).

According to CNMI officials, the islands continue to rebuild following the devastation of Super Typhoon Yutu in late 2018. These officials noted that one of their challenges is the limited number of construction workers.

We have previously reported on the limited number of construction workers in the CNMI.

In 2017, when Congress restricted the use of CW-1 permits for the construction trade, employers could continue to petition for construction workers using H-2B visas. In January 2019, because of concerns about overstays and human trafficking, DHS removed the Philippines from the list of countries eligible for the H-2B program. CNMI government officials, among others, had previously voiced concerns that the removal of the Philippines from the list would make it more difficult to hire construction workers in the aftermath of Super Typhoon Yutu.

On September 24, 2019, a bill, H.R.4479—the Disaster Recovery Workforce Act, was introduced in the House of Representatives that would increase by 3,000 the number of CW-1 permits available for construction and extraction occupations for fiscal years 2020 through 2022, and also included an exception to the restriction on issuing such permits to individuals other than long-term workers for those fiscal years. On December 20, 2019, an amended version of this bill, which retained the 3,000 permit increase and the exception, was signed into law as part of the Further Consolidated Appropriations Act, 2020.

Fewer Than a Quarter of FY 2019 CW-1 Permit Holders Had Maintained Continuous Employment in the CNMI since 2015

As provided in Public Law 115-218, long-term workers may obtain CW-1 permits valid for up to 3 years and may renew their permits for up to 3 years during the transition program. About 23 percent of FY 2019 CW-1 permit holders had maintained continuous employment in the CNMI since 2015. USCIS CW-1 permit data for fiscal years 2015 through 2019 show that, of the 11,093 foreign workers with CW-1 permits approved by USCIS for fiscal year 2019, 2,517 workers (22.7 percent) had maintained continuous employment in the CNMI since fiscal year 2015, as shown in table 4. Public Law 115-218 defines a long-term worker as an alien who was admitted to the CNMI as a CW-1 worker during fiscal year 2015 and every subsequent fiscal year prior to enactment of the law in 2018.

Agency Comments

We provided a draft of this product to the CNMI government, and the U.S. Departments of Commerce, Homeland Security, and the Interior for comment. The CNMI government and the Department of the Interior told us they had no comments on the draft report. The Departments of Commerce and Homeland Security provided technical comments, which we incorporated as appropriate.

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, and the Secretary of the Interior. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov.

If you and your staff have any questions about this report, please contact me at (202) 512-3149 or gootnickd@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 II.

Appendix I: Objectives, Scope, and Methodology

The Northern Mariana Islands U.S. Workforce Act of 2018 included a provision for GAO to biennially report on the ratio between United States workers and other workers in the Commonwealth of the Northern Mariana Islands (CNMI) workforce during each of the previous 5 calendar years. This report examines (1) economic trends in the CNMI and (2) trends in the composition of the CNMI workforce, including the ratio of United States workers to foreign workers in the CNMI during the previous 5 calendar years.

To examine the trends in the CNMI economy, we reviewed prior GAO reports and we obtained and analyzed data from the Department of Commerce’s Bureau of Economic Analysis (BEA) on the Gross Domestic Product (GDP) of the CNMI, including contributions to GDP by select industries, for calendar years 2007 through 2018. We converted the GDP figures from 2009 base year dollars to 2018 base year dollars. We also obtained and analyzed data on visitor arrivals from the Marianas Visitor Authority for fiscal years 2005 through 2019. We compared the data against data we have previously reported. As it relates to visitor arrivals, we discussed with officials from the Mariana Visitors Authority whether Super Typhoon Yutu disrupted the collection of data. All data were deemed reliable for our purposes. To examine the CNMI casinos, we reviewed annual reports from the Saipan casino operator, U.S. and CNMI government documents, press releases and news reports. We also interviewed CNMI government officials from the Departments of Finance and Labor, the Commonwealth Casino Commission, and a casino representative in Saipan, and reviewed documents from U.S. government agencies, to understand potential challenges that could affect the CNMI economy.

To examine the trends in the CNMI workforce, we obtained and analyzed data from the CNMI government and the Department of Homeland Security (DHS). Specifically:

We obtained summary level tax data from the CNMI government on December 18, 2019, which included information on the number of workers in the CNMI and their citizenship, to examine the ratio between United States and foreign workers in the CNMI workforce. These data were compiled by the CNMI Department of Finance, and were rolled up to provide counts of workers based on the workers’ reported citizenship. The data available for inclusion in this report do not match the definition of United States worker established in the 2018 Act. The Act defines a United States worker as any worker who is: a citizen or national of the United States; an alien who has been lawfully admitted for permanent residence; or a citizen of the Marshall Islands, the Federated States of Micronesia, or the Republic of Palau who has been lawfully admitted to the United States pursuant to their respective compacts of free association. In 2018, the CNMI government began collecting data on worker visa status recorded on employee tax documents filed by the employer. But about one-third of collected tax forms did not include information about the visa type or status of the worker. Therefore, with incomplete data, we could not identify people lawfully admitted for permanent residence who remain foreign citizens. The summary-level citizenship data have been used in prior GAO reports. We reviewed those reports to ensure that the data were being collected using the same procedures as in the past, and we were using the data in the same manner. We also interviewed knowledgeable CNMI officials about the data collection methods and how the data were extracted from CNMI government data systems, and checked available documentation from those prior GAO reports to confirm our use of them. We found the data were sufficiently reliable for our purposes of summarizing the numbers of United States workers and foreign workers.

We obtained record-level data (such as worker’s name, worker’s date of birth, and petition receipt number) from DHS’s U.S. Citizenship and Immigration Services (USCIS) for fiscal years 2012 through 2019 to examine CNMI-Only Transitional Worker (CW-1) program information on workers since the program began. We compared the annual number of approved CW-1 permits with the annual numerical limit, or cap, on CW-1 permits that USCIS set for fiscal years 2012 through 2019. Using computerized algorithms, we analyzed the data for key characteristics of workers who were granted CW-1 permits, such as years of continuous employment in the CNMI. To assess the reliability of the USCIS data, we tested the data electronically to identify and resolve inconsistencies in personally identifiable information for permit holders and to ensure accuracy in tracking these individuals over time, and we discussed our results with USCIS officials. We have previously used the same methods for assessing the reliability of this data, and USCIS had agreed with that methodology. We determined that the USCIS data were sufficiently reliable for our purposes of reporting on characteristics of CW-1 permit holders for fiscal year 2019 and for identifying trends over time.

We conducted this performance audit from August 2019 to February 2020 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.

Appendix II: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the contact named above, Emil Friberg (Assistant Director), Joshua Akery, Kathryn H. Bernet, Martin de Alteriis, Christopher Hayes (Analyst in Charge), Christopher Keblitis, Andrew Kurtzman, Moon Parks, Aldo Salerno, and Alexander Welsh made key contributions to this report.