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. The CNMI has 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. Error! No text of specified style in document. 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. Error! No text of specified style in document. 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 youth, adult, and dislocated worker programs. 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). Error! No text of specified style in document. figure shows, from the lowest point in 2013, the number of employed workers increased 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). Error! No text of specified style in document. workers fell from a peak of almost 38,000 in 2002 (roughly 75 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. 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. 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). Based on our preliminary analysis, 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. 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. 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. Error! No text of specified style in document. 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, 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. Error! No text of specified style in document. Error! No text of specified style in document. associated states, and could allow them to live and work either in the United States and its territories or in the CNMI only. Since 1990, the CNMI’s tourism market has experienced considerable fluctuation, as shown by the total annual number of visitor arrivals (see fig. 2). 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. Error! No text of specified style in document. 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 year 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, according to our analysis of CBP data. Error! No text of specified style in document. If all CW-1 workers, or 45 percent of the total workers in 2015, were removed from the CNMI’s labor market, our preliminary economic analysis projects 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. Error! No text of specified style in document. 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. 3). 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. Error! No text of specified style in document. 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. 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 3 for the numerical limit of CW-1 permits and number of permits approved by fiscal year. Error! No text of specified style in document. Legend: – = Not applicable; CNMI = Commonwealth of the Northern Mariana Islands; CW-1 = CNMI- Only transitional worker; DHS = U.S. Department of Homeland Security. 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 4). Error! No text of specified style in document. Legend: – = Not applicable; CNMI = Commonwealth of the Northern Mariana Islands; CW-1 = CNMI- Only transitional worker. Error! No text of specified style in document. 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 5). 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. Error! No text of specified style in document. later than 36 months from the date of the license, or by August 2017. See figure 4 for photos showing the initial gaming facility’s development site in Saipan both before and during construction. Error! No text of specified style in document. restriction for such visas. However, China is not listed as an eligible country for H-2 visas. 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 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 Department of Treasury, the existing casino and hotel on Tinian closed in 2015 after having been fined $75 million by the U.S. Error! No text of specified style in document. Department of the Treasury 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. Our preliminary analysis shows that the current number of unemployed domestic workers in the CNMI 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. Error! No text of specified style in document. 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, our preliminary analysis indicates that 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. Error! No text of specified style in document. 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. 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. However, during our ongoing work, some of the CNMI employers with whom we met reported that they face the following challenges in recruiting and retaining U.S. citizens, among others: unsatisfactory results of job postings, high costs of recruiting, and difficulty in retaining U.S. workers. Error! No text of specified style in document. The federal and CNMI governments support programs seeking to address the CNMI’s labor force challenges. These programs include job training funded by employers’ CW-1 vocational education fees that DHS transfers to the CNMI government and employment and training assistance funded by DOL. Our preliminary analysis shows that 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. 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. Results of our ongoing work indicate that 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. 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. 5). 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. Error! No text of specified style in document. Error! No text of specified style in document. 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. 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. 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. As part of our ongoing work, 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. 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. Error! No text of specified style in document. Preliminary results of our ongoing work show that 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 for job search assistance, career counseling, and training. 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. 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. 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. Error! No text of specified style in document. In December 2016, after 8 months of official 902 Consultations, informal discussions, and site visits to locations in the CNMI, the Special Representatives of the United States and the CNMI transmitted a report to the President that included six recommendations agreed to by the Special Representatives on immigration and labor matters: 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. 2. Providing permanent status for long-term guest workers. 3. Soliciting input on suggested regulatory changes to the CW program. 4. Considering immigration policies to address regional labor shortages. 5. Extending eligibility to the CNMI for additional federal workforce development programs. 6. Establishing a cooperative working relationship between DHS and the CNMI. Table 6 lists these six recommendations and summarizes proposed next steps toward implementing them that could be taken, according to the report. Chairman Murkowski, Ranking Member Cantwell, and Members of the Committee, this concludes my prepared statement. I would be pleased to respond to any questions you may have at this time. For further information regarding this statement, please contact David Gootnick, Director, International Affairs and Trade 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 statement. Individuals making key contributions to this testimony included Emil Friberg (Assistant Director), Julia Ann Roberts (Analyst-in-Charge), Sada Aksartova, David Blanding, Benjamin Bolitzer, David Dayton, and Moon Parks. Technical support was provided by Neil Doherty, Mary Moutsos, and Alexander Welsh. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Summary: In 2008, Public Law 110-229 established federal control of CNMI immigration. It required DHS to create a transitional work permit program for foreign workers in the CNMI and to decrease the number of permits issued annually; it 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 2015, foreign workers totaled 12,784, making up more than half of the CNMI workforce. GAO was asked to review the implementation of federal immigration laws in the CNMI. This testimony discusses GAO's preliminary observations from its ongoing work on (1) the potential economic impact of reducing the number of CNMI foreign workers to zero and (2) federal and CNMI efforts to address labor force challenges. GAO reviewed U.S. laws and regulations; analyzed government data, including CNMI tax records since 2001; 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. GAO also interviewed officials from the CNMI government, DHS, and the U.S. Departments of Commerce, the Interior, and Labor. If all foreign workers in the Commonwealth of the Northern Mariana Islands (CNMI) 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's preliminary economic analysis projects a 26 to 62 percent reduction in CNMI's 2015 gross domestic product (GDP)—the most recent GDP available. In addition, 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, GAO's preliminary analysis of available data shows that the unemployed domestic workforce, estimated at 2,386 in 2016, will be well below the CNMI's expected 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 and (2) employment assistance funded by the U.S. Department of Labor and implemented by the CNMI's Department of Labor. The Department of Homeland Security (DHS) collects the $150 vocational education fee assessed for each foreign worker on a CW-1 petition and transfers the fees to the CNMI government. Results of GAO's ongoing work indicate that 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. During this period, GAO's preliminary analysis shows that the CNMI government allocated about $5.8 million of the $9.1 million to three educational institutions: Northern Marianas College, Northern Marianas Trades Institute, and the CNMI's Public School System. In 2016, a U.S.–CNMI consultative process resulted in a report to Congress with six recommendations related to the CNMI economy, including one to raise the cap on CW-1 foreign worker permits and extend the permit program beyond 2019. GAO is not making any recommendations at this time. GAO plans to issue a final report in May 2017.