The CNMI consists of 14 islands in the western Pacific Ocean, just north of Guam and 5,500 miles from the U.S. mainland. Most of the CNMI population—53,883 in 2010, according to the U.S. Census—reside on the island of Saipan, with additional residents on the islands of Tinian (3,136) and Rota (2,527). The 1976 covenant between the CNMI and the United States established the islands’ status as a self-governing commonwealth in political union with the United States. The covenant granted 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 also provided U.S. citizenship to certain CNMI residents. Further, the covenant exempted the CNMI from federal immigration laws and certain federal minimum wage provisions. However, under the terms of the covenant, the U.S. government has the right to apply federal law in these exempted areas without the consent of the CNMI government. Acting under this authority, Congress enacted CNRA in 2008 to apply federal immigration laws to the CNMI; in November 2009, the U.S. government began its application of immigration laws to the CNMI. Between 1980 and 2009, the CNMI used its authority over its own immigration policy to bring in foreign workers under temporary renewable work permits and to allow the entry of foreign business owners and their families. Owing primarily to the influx of these workers between 1980 and 2000, the CNMI population increased from about 16,800 in 1980 to 69,200 in 2000, and the CNMI economy became dependent on foreign labor. Most of these foreign workers were employed in the garment and tourism industries, which together accounted for about 80 percent of all employment in the CNMI in 1995. However, beginning in the late 1990s, the tourism industry experienced a sharp decline, as total visitor arrivals to the CNMI dropped by more than half, from a peak of 736,117 in 1996 to 340,957 in 2011. In addition, in 1999, the garment industry was central to the CNMI economy and employed close to a third of all workers; however, by early 2009, the last garment factory had closed. Because of the decline in the tourism industry and the departure of the garment industry, employment in the CNMI has fallen. Between 2002 and 2010, the number of foreign workers in the CNMI dropped by more than 60 percent, according to CNMI Department of Finance tax data. CNMI tax data also show that in 2010 there were 14,958 foreign workers and 11,336 U.S. workers in the CNMI, with foreign workers outnumbering U.S. workers in all industries but government and banking and finance. Figure 1 shows the numbers of foreign and U.S. workers in the CNMI labor force from 2002 through 2010. As the number of foreign workers has declined, the CNMI’s real gross domestic product (GDP) has also fallen sharply, declining by 49 percent between 2002 and 2009. Figure 2 shows the CNMI’s real GDP from 2002 through 2010. The CNMI government’s revenues have also fallen by 45 percent, from $240 million in fiscal year 2005 to an estimated $132 million for fiscal year 2011. In addition, the cost of labor in the CNMI increased after application of the federal minimum wage began there in 2007. Labor costs may increase further because of the potential application of Federal Insurance Contributions Act (FICA) payroll taxes to some previously exempt workers. CNRA’s stated intent in establishing federal immigration law in the CNMI is in part to minimize, to the extent practicable, any potential adverse economic and fiscal effects of phasing out the CNMI’s own foreign worker permit program and to maximize the CNMI’s potential for economic and business growth. To that end, CNRA provides, among other things, opportunities for individuals authorized to work in the United States, including citizens of the Freely Associated States, and provides a mechanism for the continued use of foreign workers as needed to supplement the CNMI’s resident workforce. (See app. II for the complete statement of congressional intent.) CNRA required that DHS, DOL, and DOI take the following actions, among others: DHS. CNRA required that the Secretary of Homeland Security establish a transitional work permit program for foreign workers in the CNMI during the initial 5-year transition period. In administering this program, the Secretary must determine the number, terms and conditions, and fees for the permits. The Secretary must also provide for an annual reduction in the allocation of permits for foreign workers that results in zero permits by the end of the transition period; however, the length of the transition period can be repeatedly extended by the Secretary of Labor (see the following subsection). The system for allocating permits may be based on any reasonable method and criteria determined by the Secretary of Homeland Security. CNRA also requires DHS to collect from CNMI employers $150 per worker per year, which the Secretary must transfer to the Treasury of the CNMI for the purpose of funding ongoing vocational educational curricula and program development in the CNMI by CNMI educational entities. In adopting and enforcing the program, DHS must consider in good faith any comments and advice submitted by the Governor of the CNMI within 30 days of receipt. DOL. CNRA required that the Secretary of Labor, in consultation with the Secretaries of Homeland Security, Defense, the Interior, and the Governor of the CNMI, ascertain the current and anticipated labor needs of the CNMI and determine whether an extension of the transition period by up to 5 years at a time is necessary to ensure that an adequate number of workers will be available for legitimate businesses in the CNMI. DOL must determine the extension no later than 180 days before the end of the transition period. DOL is to base its decision on the labor needs of legitimate businesses in the CNMI and may consider a number of factors, such as CNMI unemployment rates and efforts to train U.S. citizens, lawful permanent residents, and unemployed foreign workers in the CNMI. (See app. III for a list of the factors that CNRA states DOL may consider.) DOI. CNRA required that the Secretary of the Interior, in consultation with the Governor of the Commonwealth, the Secretary of Labor, the Secretary of Commerce, and CNMI private sector representatives, provide technical assistance to the CNMI, including assistance for recruiting, training, and hiring of workers to assist employers in the CNMI to hire U.S. citizens and nationals and legal permanent residents. Technical assistance must also be provided for identifying economic opportunities and for job skills identification and curricula development. In addition, CNRA required that the Secretaries of Homeland Security, Labor, the Interior, and State negotiate and implement interagency agreements to assign their respective duties in order to ensure the timely and proper implementation of CNRA requirements. In our August 2008 report, we found that the interaction of DHS and DOL decisions—on how many CNMI transitional work permits to allocate annually and whether to extend the transition period, and therefore the CNMI transitional work permit program, past 2014—would significantly affect employers’ access to foreign workers. We also found that because of the prominence of foreign workers in the CNMI labor market, any substantial and rapid decline in permits for foreign workers would have a negative effect on the size of the CNMI economy. However, a more modest reduction in the annual permit allocations would result in minimal effects on the CNMI economy. To illustrate a range of possible effects on the CNMI economy given varying rates of reduction in the annual allocation of CNMI transitional work permits for foreign workers, for our 2008 report we generated simulations that estimated the impact on the CNMI’s economy by an index representing total GDP. We generated these simulations for several scenarios, using a range of assumptions regarding the effect of a reduction of labor on production and the ability of the CNMI resident workforce to substitute for the foreign workers in production. In the first scenario, we found that a steep reduction in the transitional work permits for foreign workers—from 20,000 in 2007 to 1,000 by 2021—would lower the CNMI’s GDP to a range of about 21 percent to 73 percent of its 2007 value by 2021. In the second scenario, we found that a less precipitous decline in the transitional work permits—from about 20,000 in 2007 to about 8,000 by 2021—would lower the CNMI’s GDP to a range of about 64 percent to 85 percent of its 2007 value by 2021. In the third scenario, we found that a much smaller decline in the transitional worker permits— from 20,000 in 2007 to 17,000 by 2021—would lower the CNMI’s GDP to a range of no less than about 92 percent to about 98 percent of its current value by 2021. On September 7, 2011, DHS issued a final rule to implement a CNMI transitional work permit program, as required by CNRA, for foreign workers who would not otherwise be admissible under federal law. The final rule creates a classification of CW-1 status for transitional foreign workers and a CW-2 status for dependents of CW-1 workers. DHS delayed issuing a final rule for almost 2 years, following a court injunction on its October 2009 interim rule that prohibited it from issuing a final rule until it followed notice-and-comment rulemaking procedures to consider public comments on its interim rule. DHS received 146 public comments on the interim rule and made some changes in the final rule in response to those comments. (For more information on DHS’s actions to issue the final rule and respond to public comments on its interim rule, see app. V.) As required by CNRA, DHS’s final rule on the CNMI transitional work permit program addresses (1) the number of permits to be issued; (2) the terms and conditions for the permits; and (3) the fees for the permits, including a $150 vocational education fee. United States Citizenship and Immigration Services (USCIS), a component of DHS, is responsible for processing petitions for these permits. Table 1 describes how DHS’s final rule addresses these implementation decisions. DHS’s methodology for the allocation of CW-1 permits for fiscal years 2011 and 2012 included considering, among other factors, requests by the CNMI governor (as required by CNRA) not to reduce the number of permits in the program’s first 2 years; CNRA’s mandate that it reduce the number of permits annually; and the potential demand for the permits, according to DHS’s final and interim rules for the program. DHS’s final rule states that DHS set the fiscal year 2011 allocation of 22,417 CW-1 permits based on the CNMI government’s estimate of the number of foreign workers in the CNMI when CNRA was enacted in May 2008. The final rule also states that DHS’s reduction of the number of permits by one permit for fiscal year 2012 was intended to (1) effectively maintain a steady level of permits available to CNMI employers for the first 2 years of the CW-1 permit program and (2) accommodate potential demand for the permits expected because CNMI government-issued work permits for foreign workers were set to expire in the first quarter of fiscal year 2012.Further, DHS’s interim rule stated that when making its permit allocation, DHS considered the Governor’s request not to reduce the number of permits in the program’s first 2 years as well as CNRA’s requirement that DHS reduce the number of permits on an annual basis. DHS’s USCIS had processed 49 percent of the petitions it had received for fiscal year 2012 as of July 1, 2012, approving 45 percent and denying or rejecting about 5 percent. USCIS received 5,777 petitions for 11,830 CW-1 permits—about half of its annual allocation of 22,416 permits for fiscal year 2012. According to USCIS officials, USCIS plans to complete an initial review of all of the CW-1 petitions by September 1, 2012, and to process all of the petitions by December 31, 2012. Employers who have filed petitions that are still pending are permitted to continue to employ workers who were living and working lawfully in the CNMI at the time the petition was filed. Figure 3 shows the status of petitions for CW-1 permits that USCIS received between October 1, 2011, and June 30, 2012. USCIS received almost 93 percent of the CW-1 petitions in November and December 2011, shortly before and after the expiration of temporary CNMI-government-issued authorizations for foreign workers on November 28, 2011. Since November 2011, USCIS has substantially increased the number of CW-1 petitions it has processed each month, processing over 850 petitions in May 2012 compared with only 40 petitions in November 2011 (see fig. 4). According to USCIS officials, USCIS has encountered two main challenges in completing the processing of CW-1 petitions: Many CW-1 petitions require further evidence from the petitioner. For example, some petitions do not contain evidence that the petitioner is engaged in a legitimate business and has considered all U.S. workers for the position, among other things. As of July 2012, USCIS had requested additional evidence for 3,200 petitions, or more than half of the CW-1 petitions submitted in fiscal year 2012. The office responsible for obtaining biometric information, such as fingerprints, from workers seeking a CW-1 work permit has had difficulty meeting added workload demand. USCIS only has one office in Saipan that is able to obtain biometric information from workers seeking CW-1 status, and it is staffed to capacity. To help meet the demands of obtaining biometric information from workers seeking CW-1 status in remote areas, USCIS deployed teams of two staff members to the outlying islands of Rota for 9 business days and Tinian for 16 business days. USCIS has also trained additional officers at the USCIS California Service Center to help process, as needed, petitions and applications related to the CW-1 work permit program. DHS officials stated that they are working to determine the permit allocation for fiscal year 2013 and will announce the allocation in the Federal Register by October 1, 2012. CNRA requires that DHS provide for an annual reduction in the number of permits. DHS’s final rule states that DHS will determine the permit allocation on an annual basis and announce it in the Federal Register. DOL officials told us that, as of July 2012, the department had not decided whether or when it will extend the transition period. Officials said the department does not expect to announce a decision before the end of 2012 and pointed out that DOL is not required by CNRA to make its determination until July 5, 2014. DOL officials said they plan to comply with CNRA requirements to consult DHS, DOI, the Department of Defense (DOD), and the Governor of the CNMI before making the determination. DHS has identified a single source of CNMI workforce data that it intends to use for its annual allocation of transitional work permits and has not made public the types of information, such as its methodology, that it will publish with future permit allocations. In commenting on a draft of this report, DHS stated that it will provide its methodology for its fiscal year 2013 permit allocation upon publishing the allocation. In contrast, DOL has identified multiple sources of data on the CNMI labor market and plans to conduct a number of analyses of these data in making its determination of whether and when to extend the transition period. DHS has identified one data source that it will use for implementing CNRA requirements, including its annual permit allocation decision, according to a department official. In 2008, we recommended that DHS develop a strategy for collecting data to help it meet CNRA goals. According to the DHS official, the department subsequently identified one data source that it will use to help it implement CNRA requirements: the U.S. Census Bureau’s County Business Patterns, which provides data on the number of paid workers, businesses, and payroll by industry in the CNMI annually. However, the source does not provide numbers of U.S. and foreign workers by industry, which could help DHS predict future demand for foreign workers. DHS has also not made public the methodology it will use in allocating CW-1 permits for fiscal year 2013, and the September 2011 final rule does not state whether DHS will publish its methodology for future allocations. made public the types of information—including its methodology for the allocation—that it will publish with future permit allocations. In commenting on a draft of this report, DHS stated that it will provide the methodology for the fiscal year 2013 permit allocation upon publishing the allocation. The final rule states that DHS will assess the CNMI’s workforce needs annually when determining the annual permit allocation. According to a senior DHS official, the department has not The final rule states that DHS believes publishing the allocation annually in the Federal Register will provide sufficient notice to the public of the permit allocation. However, DHS also notes that economic analysis is hampered by significant uncertainty regarding future demand for foreign workers and by a general lack of CNMI economic and production data that would allow DHS to estimate the impact of the final rule on the broader CNMI economy. In June 2012, DOL outlined a strategy for obtaining data on the CNMI labor market that it will use to determine whether to extend the transition period. DOL outlined this strategy in responding to a recommendation in our 2008 report that it develop a strategy for collecting data to help it meet CNRA goals. This strategy includes the data source DHS identified to help it implement CNRA requirements as well as other data sources, one of which identifies the number of workers by citizenship and industry in the CNMI.multiple data sources, including the following: According to DOL’s strategy, the department will review U.S. County Business Patterns (U.S. Census Bureau). DOL will request data for 2008 and 2011. U.S. Census (U.S. Census Bureau). DOL will request data for 2010 that includes, among other types of data, social and demographic data by age, sex, race, household relationship, and household type. CNMI tax records (CNMI Department of Finance). DOL will request data for 2008 through 2011 that includes, among other types of data, the number of workers in the CNMI by citizenship, industry, and occupation. Regarding DOL’s methodology, DOL officials indicated that the department plans to analyze the data identified in its strategy, as well as other types of information, to address the factors that CNRA suggested DOL consider when making its determination (see app. III for a listing of the factors suggested by CNRA). For example: DOL plans to request from the U.S. Census Bureau special cross tabulations from the 2010 U.S. Census data by citizenship status, employment status, and place of birth to help it estimate the current unemployment rate of different populations within the CNMI. DOL plans to use the U.S. Census Bureau’s County Business Patterns data, CNMI Department of Finance tax data, U.S. Bureau of Economic Analysis estimates of the CNMI’s GDP, and government studies to help it determine CNMI businesses’ need for foreign workers. DOL plans to conduct structured interviews with representatives and officials from the CNMI Office of the Governor, officials from the CNMI Department of Labor, officials from and members of the Saipan Chamber of Commerce, and CNMI worker advocates. DOL expects that these interviews will help it identify efforts by CNMI businesses and the CNMI Department of Labor to prepare U.S. residents to assume jobs typically held by foreign workers in the CNMI; provide evidence that may indicate whether U.S. citizens or lawful permanent residents are willing to accept jobs offered; and determine whether there is a need for foreign workers to fill specific industry jobs. DOL plans to estimate changes in employment and in the GDP in each CNMI industry sector that might result from a reduction in the number of foreign workers. DOL officials noted that the department’s plans to obtain these data and conduct various analyses are subject to budget and staffing constraints, and the complete and timely response to its various data requests. DOL officials also said that they will solicit feedback in the near future from DHS, DOI, DOD, and the Governor of the CNMI on DOL’s data collection strategy and the additional analyses DOL plans to conduct using these data. The estimated number of foreign workers with a valid or pending CW-1 permit petition include those whose petitions were initially rejected because they lacked a signature or the correct fee; in such cases, petitions can be resubmitted with the correct permit fee and/or signature. eligible for employment authorization to work in the CNMI; 134 foreign workers (about 1 percent of all foreign workers) with valid nonimmigrant worker or investor status. Officials and members of the Saipan Chamber of Commerce (Chamber) stated that businesses face difficulties in finding U.S. workers to replace foreign workers.workers available to replace foreign workers in the CNMI is limited. Officials said that U.S. citizens graduating from high school are more likely to leave the CNMI to obtain a university degree and not return because of the limited availability of jobs, the high cost of living in the CNMI, and the higher earning potential elsewhere. See text box for examples of comments from CNMI businesses. According to Chamber officials, the number of U.S. Comments from CNMI Businesses on Challenges of Finding Replacements for Foreign Workers “There simply not enough employable U.S. eligible worker in the CNMI. . . . We have lost two workers who have resigned and decided to return to the Philippines . It been very difficult to replace them.” “If a local person wants a degree in computer science, would have to travel to the United States and spend at least 4 years in college. After receiving a degree, these local people do not want to return to the CNMI. . . . Their salaries would be less than half of . . . . If we are forced to send all of our highly trained personnel back to the Philippines, then I will be forced to close our doors and go out of business.” “There simply will not be enough able-bodied individuals entering the workforce to replace the departing workers.” “We have already tried working with employees who are U.S. citizens. This has not been particularly successful in our profession, because typically the individuals available are of a lower professional standard, or entry level. . . . U.S.-based professionals in our field are not willing to move to the CNMI.” These include H1B, H2B, L1A, R1, E2, and E2C. E2 and E2C investors were included because they are authorized to work in the CNMI. CNMI businesses’ uncertainty about future access to foreign workers, due to the limited availability of information regarding future work permit allocations and any extension of the transition period, may be creating disincentives for investment. Economics literature on the effects of uncertainty suggests that government policies and regulations can become a source of uncertainty. When facing uncertainty, businesses tend to delay investments that cannot be easily recovered, such as investments in expanding a hotel or building a new golf course; by delaying investments, businesses keep their options open until more information becomes available. For example, if a hotel in the CNMI were trying to decide whether to expand its operation by adding new rooms, it currently would face significant uncertainty regarding its future cost structure and its access to foreign workers. In 2009, labor costs accounted for approximately one-third of a hotel’s operating cost, according to a survey of CNMI businesses that we conducted. Without access to foreign workers, a hotel might have to increase its wage rate significantly to attract enough U.S. workers with the specific skills, such as the ability to speak a foreign language. Facing such uncertainty regarding future payroll costs, the hotel might decide not to invest until it has more information about its continued access to foreign labor. Consistent with the economics literature, Chamber officials and some Chamber members identified uncertainty regarding pending federal actions that may affect employers’ access to foreign labor as a factor that has limited investment in the CNMI. Specifically, members said that uncertainty has caused them to limit their plans for future investments. The text box below shows examples of comments from CNMI businesses that are members of the Chamber. Comments from CNMI Businesses on Impact of Uncertain Access to Foreign Labor on Investment Plans “The uncertainty over the access to foreign skilled labor is preventing investment in the CNMI. . . . While we aim to maintain a presence in the CNMI and continue to look for investment opportunities, it gets harder and harder. In today’s global economy . . . we are looking elsewhere for further and future investment.” “By not indicating that a permanent fix or an extension is in the plan, [federal agencies have] simply made CNMI more unattractive for investors.” “It is probable we will increase as a precaution to the difficulty in obtaining enough qualified people after 2014.” “The uncertainty with labor force puts my company middle and long-term plans on hold. . . . Our company will not purchase any expensive machinery, construct any new facility, open new work positions, which will mean less business for company’s partners and other local businesses.” Chamber officials also cited limited access to adequate health care in the CNMI, the high cost of living, and the high cost of shipping goods to and from the CNMI as factors that may have affected businesses’ investment decisions in the CNMI. DOL, DOI, and DHS have made available a combined total of about $6.5 million for worker training in the CNMI in fiscal years 2010 through 2012 (see table 2). DOL provided funding through annual grants throughout this period; DOI, through a one-time grant in fiscal year 2011; and DHS, through a cash transfer in fiscal year 2012.reporting requirements. WIA created a comprehensive workforce investment system that brought together multiple federally funded employment and training programs into a single system, called the one-stop system. One-stop centers serve two customers—job seekers and employers. Pub. L. No. 105-220, 112 Stat. 936 (codified at 29 U.S.C. § 2801 et seq.) According to DOL official, funds are made available for WIA Adult, Dislocated Workers, and Youth programs annually for three years; however, DOL officials said DOL requires 70 percent of the funds to be obligated within the year that the funds are made available. For more information on the WIA, see GAO, Workforce Investment Act: Innovative Collaborations between Workforce Boards and Employers Helped Meet Local Needs, GAO-12-97, (Washington, D.C.: Jan. 19, 2012). programs in the CNMI.dislocated workers, and youths that provide a broad range of services including job search assistance, assessment, and training for eligible individuals. Under the terms and conditions of the WIA grants, DOL requires quarterly performance and financial reports from the CNMI agency. The DOI awarded the remaining $300,000 to hire an economic advisor in the CNMI. In 2010, we found that the DOI had opportunities to better oversee grants and reduce the potential for mismanagement and recommended that the DOI evaluate its existing authorities that could be used to ensure more efficient use of funds by insular areas, establish its staffing needs for grant project monitoring, and clarify its grant management policy on the movement of funds between projects. See GAO, U.S. Insular Areas: Opportunities Exist to Improve Interior’s Grant Oversight and Reduce the Potential for Mismanagement, GAO-10-347 (Washington, D.C.: Mar. 16, 2010). collects these funds annually from the $150 vocational educational funding fee assessed for each foreign worker on a CW-1 petition. According to a senior DHS official, DHS will continue to collect and transfer these funds to the CNMI Treasury until the end of the transition period. The senior official said that because DHS transfers these funds directly to the CNMI Treasury, the funds are not subject to DHS grant terms or conditions, such as performance or financial reporting requirements. The official also noted that CNRA does not direct DHS to impose any such requirements on the funds. DOL and DOI collect information from the CNMI government regarding job training activities and results funded by, respectively, the DOL WIA grants and the DOI technical assistance grant. We also obtained information from CNMI legislative staff regarding the CNMI governor’s plans to use the funds collected from the DHS work permit program. In two instances, the same organizations are designated to receive vocational educational funding from two or more of the agencies. DOL. The CNMI State Workforce Investment Agency, the recipient of the WIA grants, submits investment performance reports to DOL on a quarterly basis, as required by the grants’ terms and conditions. The agency submitted its most recent performance report, with information on training program participants, characteristics, demographics, and services, in May 2012. According to the DOL grant manager, the services most often provided in the CNMI through WIA’s Adult Worker Program, Dislocated Worker Program, and Youth program are on-the- job training and work experience. Providers of training include the Northern Marianas College, the Northern Marianas Trades Institute, CNMI government agencies, and private businesses. Between June 2011 and June 2012, the CNMI State Workforce Investment Agency reported to the DOL grant manager that it had provided training services to 247 individuals in the Adult Program, 17 individuals in the Dislocated Worker Program, and 719 individuals in the Youth Program. According to the DOL grant manager, most of the youths received training services through summer youth programs. The CNMI State Workforce Investment Agency further reported that 50 participants of the Adult Program, 6 participants of the Dislocated Worker Program, and 38 participants of the Youth Program in fiscal year 2011 have obtained employment. DOL said that because of budget restrictions, the DOL grant manager has not performed an on- site monitoring review of the WIA grants to the CNMI since 2006. According to DOL officials, information on the performance of this grant is available to Congress on request. DOI. The CNMI Department of Commerce, the recipient of the $700,000 DOI technical assistance grant for on-the job training programs, submits a narrative on the status of the grant project to DOI on a semiannual basis, as required by the grant’s terms and conditions. The CNMI Department of Commerce submitted its last narrative report to the DOI grant manager in July 2012. The CNMI Department of Commerce reported to the DOI grant manager that as of June 2012 it had trained 227 U.S. workers with grant funds and that 51 U.S. workers were hired or employed. The June report also documents that the CNMI Department of Commerce had awarded $586,000 of the $700,000 grant to a variety of CNMI business and industry groups and institutions to support their on-the-job training programs. According to the CNMI Department of Commerce, recipients of funds from the DOI grant include the CNMI Aquaculture Producers Association, Marianas Resource Conservation and Development Council, Northern Mariana Trades Institute, Society for Human Resources Management, Saipan Sabalu Farmers Market Incorporated, and The Bridge Project. DOI representatives completed at least two site visits to each of the CNMI grant recipients during the last 6-month reporting period. According to a DOI official, information on the performance of this grant is available to Congress on request. DHS. Because DHS’s transfers to the CNMI government of vocational educational funds collected through the CW-1 work permit fee are not subject to reporting requirements, the CNMI government has not submitted any performance or financial reporting on its use of these funds. However, according to CNMI legislative staff, the CNMI governor has communicated plans to the CNMI legislature for the use of $1.5 million of the $1.8 million in DHS-transferred vocational educational funding in fiscal year 2013. According to the plans, the funds will be used to defray qualified expenses at the Public School System ($500,000), Northern Marianas College ($500,000), and Northern Marianas Trades Institute ($500,000). Since the United States applied federal immigration law to the CNMI in 2009, the CNMI economy has remained dependent on foreign workers despite their declining numbers. Part of CNRA’s stated intent is to minimize, to the greatest extent practicable, harm to the CNMI’s economy by providing a mechanism for the continued use of foreign workers as needed and providing opportunities to individuals authorized to work in the United States. In keeping with CNRA’s stated intent, CNRA gives DHS and DOL flexibility to preserve CNMI businesses’ access to foreign workers through DHS’s annual permit allocation and DOL’s ability to extend the transition period. DHS published its methodology for its allocations of transitional worker permits for fiscal years 2011 and 2012, stating that the allocations were responsive both to CNRA’s mandate and to potential demand for the permits. However, to date, DHS has not made public the methodology it will be using for the fiscal year 2013 allocation or whether it will provide its methodology when publishing future permit allocations beyond fiscal year 2013. Making this information available could help allay CNMI businesses’ uncertainty regarding the unknown impact of DHS’s pending decision on their future access to foreign workers and help mitigate the effect of such uncertainty on CNMI businesses’ investment plans. Despite the limited availability of economic data for the CNMI, DHS has identified one data source to help it implement CNRA requirements, including its annual allocation of the transitional worker permits. Meanwhile, DOL has outlined multiple sources of data that it plans to collect and analyses that it plans to complete to ascertain CNMI labor needs and determine whether to extend the transition period. Using the data DOL collects and the analyses it performs could enable DHS to more accurately assess the CNMI workforce needs when determining its next permit allocation and the potential economic impact. Recognizing the need to locate, educate, and train workers to replace departing foreign workers, CNRA requires DOI to provide technical assistance to assist employers in the CNMI in securing employees from among U.S. citizens and national residents. CNRA also requires DHS to collect fees from its permit program for worker training and to transfer those funds to the CNMI Treasury. Currently, information on the use and performance of the DOI grant and DOL grants that fund, among other things, worker training in the CNMI, is available to Congress on request. DHS does not collect information on the use and performance of its cash transfers to the CNMI, because these funds are not subject to reporting requirements. We recommend that the Secretary of Homeland Security take the following two actions: 1. to help ensure that CNMI’s businesses are better able to plan for future permit allocations, provide, when publishing DHS’s annual permit allocation, the methodology it used and the factors it considered to determine the number of permits allocated; and 2. to help ensure that DHS has the information it needs to assess the needs of the CNMI workforce as it decides on future permit allocations, use Department of Labor analyses of economic data on the labor needs of the CNMI as a factor in deciding on future permit allocations. We provided a draft of this report to the Departments of State, Homeland Security, the Interior, Labor, and the government of the CNMI for their review and comment. We received written comments from DHS and the government of the CNMI, which are reprinted in app. VI and VII, respectively. We also received technical comments from the Departments of the Interior and Labor, which we incorporated, as appropriate. The Department of State had no comments. Following are summaries of the written comments from DHS and the CNMI government. DHS concurred with our recommendation that it provide, when publishing its annual permit allocation, the methodology it used and the factors it considered to determine the number of permits allocated. DHS agreed that it is appropriate when publishing its annual transitional worker permit allocation to provide at least a brief explanation of how the number was derived. For its fiscal year 2013 allocation, DHS said that it plans to publish a notice that will describe the methodology it used to determine the allocation. DHS did not concur with our recommendation that it use DOL analyses of economic data on the labor needs of the CNMI as a factor in deciding on future permit allocations, DHS agreed in general that relevant sources of information should be used and that the items described by DOL may be useful in future transitional worker permit allocation decisions. However, DHS will await further information as to what DOL has to provide. Once the DOL analysis is available, DHS will review it to determine its appropriateness and whether it should be factored into decision making for future permit allocations. We maintain that the data and analyses DOL plans to collect and complete will help DHS to more accurately assess the workforce needs of the CNMI when determining future permit allocations. The CNMI government agreed with both of our recommendations to DHS. The CNMI government also expressed concern with uncertainties related to CNMI labor resources and capacity. For example, the CNMI government said that the CNMI does not have the capacity to effectively track unemployment rates, available and vacant positions, as well as skill sets, which the government said is necessary to forecast the CNMI’s labor pool. The CNMI government also said that it is in full support of the continued use of foreign labor in the CNMI economy. The government said that it believes in the overall intention of the CNRA to reduce foreign workers through the transitional worker permit program and to prioritize U.S. qualified workers in order to stabilize the CNMI economy. The CNMI government said that it supports any reduction of transitional worker permits for fiscal year 2013 to at least 50 percent of the original estimate. We are sending copies of this report to interested congressional committees. We also will provide copies of this report to the U.S. Secretaries of Homeland Security, Labor, the Interior, and State and to the Governor of the CNMI. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have 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 VIII. The objectives of this review were to (1) assess the status of federal implementation of the Commonwealth of the Northern Mariana Islands (CNMI) transitional work permit program for foreign workers, (2) examine the economic implications for the CNMI of pending federal actions related to this permit program, and (3) provide the status of federal efforts to support worker training in the CNMI. To assess the status of federal implementation of the CW-1 transitional work permit program, we reviewed the Department of Homeland Security’s (DHS) final and interim rules containing regulations implementing the CW-1 work permit program and determined what changes to the interim rule were made in the final rule. We also independently reviewed the 146 public comments DHS received on its interim rule and determined whether DHS captured the comments’ major areas of concern in its discussion of the public comments in the final rule. In addition, we obtained data from DHS’s U.S. Citizenship and Immigration Services (USCIS) on the number of petitions and applications submitted for foreign worker beneficiaries of the CW-1 work permit and their dependents. We interviewed officials from DHS components, including USCIS, U.S. Immigration and Customs Enforcement, U.S. Customs and Border Protection, and USCIS Office of Performance and Quality. We also interviewed officials from the Departments of Labor, State, and the Interior and officials from the Saipan Chamber of Commerce. In addition, we obtained information from the CNMI government. To examine the economic implications of pending federal actions on the CNMI economy, we obtained and analyzed tax data from the CNMI Department of Commerce that was originally generated by the CNMI Department of Finance. These data came from W-2 forms prepared annually by employers in the CNMI and submitted to the CNMI Department of Finance’s Division of Revenue and Taxation to support wages paid and taxes withheld. Because employers completed the W-2 form, we were unable to determine how foreign workers who had been granted permanent residency in the CNMI were categorized in the data (i.e., whether as U.S. or non-U.S. workers). Further, to determine the number of foreign workers in the CNMI in 2012, we obtained USCIS data on the number of foreign workers with an approved and/or pending worker status including CW-1, H1B, H2B, L1A, P1B, and R1 and investor status (which also authorizes the investor to work) including E2 and E2C as of June 2012. We also obtained USCIS data on the number of foreign workers with an approved and/or pending Employment Authorization Document (EAD) as of April 2012. To determine whether a worker or investor status was still valid, we took the maximum validity period for each status and examined the number of statuses granted during that time. For example, if a status was valid for up to 3-years, we calculated the number of DHS approved statuses within a 3-year interval. Similarly, if a status was valid for 1-year, we calculated the number of DHS approved statuses within a 1-year interval. Further, to determine whether an approved EAD was still valid, we examined the number of EADs approved in a 1-year interval. According to USCIS, in most cases EADs are valid for 1 year. We also obtained USCIS data on the number of aliens residing in the CNMI who had been granted U.S. permanent residency or U.S. citizenship. In addition, we conducted interviews with officials from the Saipan Chamber of Commerce (Chamber) and provided the Chamber with a list of questions on how pending federal actions have impacted CNMI businesses. Officials responded to the questions and also distributed them to their members, seven of whom submitted responses. We also obtained data on the CNMI’s gross domestic product (GDP) from the U.S. Bureau of Economic Analysis. We reviewed economics literature on the effects of uncertainty about future economic conditions on business investments, and data from the 2011-2012 HVS Hotel Development Cost Survey and a 2010 GAO survey of CNMI businesses. To provide the status of federal efforts to support worker training in the CNMI, we obtained information on the Department of Labor’s (DOL) Workforce Investment Act (WIA) grant, such as the grant’s terms and conditions, performance and financial reports, and notice of obligations; the Department of Interior (DOI) technical assistance grant that provides funding for worker training programs, such as grant terms and conditions, the most recent performance report submitted for the grant, and federal award amounts; and DHS information on the amount of funds DHS had collected from its transitional work permit program transferred to the CNMI Treasury to support CNMI vocational curricula and program development. Further, we conducted interviews with DOL officials from the Employment and Training Administration, including the grant manager responsible for monitoring WIA programs in the CNMI; DOI officials from the Office of Insular Affairs; and DHS officials from the USCIS Accounting and Reporting Bureau and USCIS Office of Chief Counsel. In addition, we obtained information on whether DHS funds would be subject to the Single Audit Act from the CNMI’s Office of the Public Auditor and one of the private companies generally responsible for completing the CNMI audits required under the act. In general, to establish the reliability of USCIS data that it uses to document immigration benefits in the CNMI, CNMI Department of Finance data that it uses to document the number of U.S. and foreign workers in the CNMI, and DHS budget data, we systematically obtained information about the way in which data were collected and tabulated. When possible, we checked for consistency across data sources. Although the CNMI Department of Finance data provided by the CNMI Department of Commerce had a limitation, we determined that the available data were adequate and sufficiently reliable for the purposes of our review. We conducted this performance audit from January 2012 to September 2012 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 we obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. CNRA includes the following statement of congressional intent in establishing federal immigration law in the CNMI, which we present here verbatim: a. Immigration and Growth.—In recognition of the need to ensure uniform adherence to long-standing fundamental immigration policies of the United States, it is the intention of the Congress in enacting this subtitle— 1. to ensure that effective border control procedures are implemented and observed, and that national security and homeland security issues are properly addressed, by extending the immigration laws (as defined in section 101(a)(17) of the Immigration and Nationality Act (8 U.S.C. 1101 (a)(17)), to apply to the Commonwealth of the Northern Mariana Islands (referred to in this subtitle as the “Commonwealth”), with special provisions to allow for— A. the orderly phasing-out of the nonresident contract worker program of the Commonwealth; and B. the orderly phasing-in of Federal responsibilities over immigration in the Commonwealth; and 2. to minimize, to the greatest extent practicable, potential adverse economic and fiscal effects of phasing-out the Commonwealth's nonresident contract worker program and to maximize the Commonwealth's potential for future economic and business growth by— A. encouraging diversification and growth of the economy of the Commonwealth in accordance with fundamental values underlying Federal immigration policy; B. recognizing local self-government, as provided for in the Covenant To Establish a Commonwealth of the Northern Mariana Islands in Political Union With the United States of America through consultation with the Governor of the Commonwealth; C. assisting the Commonwealth in achieving a progressively higher standard of living for citizens of the Commonwealth through the provision of technical and other assistance; D. providing opportunities for individuals authorized to work in the United States, including citizens of the freely associated states; and E. providing a mechanism for the continued use of alien workers, to the extent those workers continue to be necessary to supplement the Commonwealth's resident workforce, and to protect those workers from the potential for abuse and exploitation. b. Avoiding Adverse Effects.—In recognition of the Commonwealth's unique economic circumstances, history, and geographical location, it is the intent of the Congress that the Commonwealth be given as much flexibility as possible in maintaining existing businesses and other revenue sources, and developing new economic opportunities, consistent with the mandates of this subtitle. This subtitle, and the amendments made by this subtitle, should be implemented wherever possible to expand tourism and economic development in the Commonwealth, including aiding prospective tourists in gaining access to the Commonwealth's memorials, beaches, parks, dive sites, and other points of interest. CNRA states that DOL is to base its determination of whether to extend the transition period on the labor needs of legitimate businesses in the CNMI. CNRA states that in determining these needs, DOL may consider, among other relevant factors, the following, which we present here verbatim: 1. government, industry, or independent workforce studies reporting on the need, or lack thereof, for alien workers in the Commonwealth’s businesses; 2. the unemployment rate of U.S. citizen workers residing in the 3. the unemployment rate of aliens in the Commonwealth who have been lawfully admitted for permanent residence; 4. the number of unemployed alien workers in the Commonwealth; 5. any good faith efforts to locate, educate, train, or otherwise prepare U.S. citizen residents, lawful permanent residents, and unemployed alien workers already within the Commonwealth, to assume those jobs; 6. any available evidence tending to show that U.S. citizen residents, lawful permanent residents, and unemployed alien workers already in the Commonwealth are not willing to accept jobs of the type offered; 7. the extent to which admittance of alien workers will affect the compensation, benefits, and living standards of existing workers within those industries and other industries authorized to employ alien workers; and 8. the prior use, if any, of alien workers to fill those industry jobs, and whether the industry requires alien workers to fill those jobs. In April 2010, the DOI recommended that Congress consider permitting foreign workers who have lawfully resided in the CNMI for a minimum of 5 years—which the DOI estimated at 15,816 individuals—to apply for long- term resident status under the Immigration and Nationality Act. The DOI estimated that 15,816 foreign workers would be affected and recommended that Congress consider 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, the DOI noted that under U.S. immigration law, special status is provided to individuals who are citizens of the freely associated states (the Federated States of Micronesia, the Republic of the Marshall Islands, and the Republic of Palau). Following this model, the DOI suggested that foreign workers could be granted a nonimmigrant status similar to that negotiated for citizens of the Freely Associated States. The foreign workers would be allowed to live and work either in the United States and its territories or in the CNMI only. In April 2011, legislation introduced in Congress proposed CNMI resident status for certain long-term residents. To qualify for this status, an individual must be (1) born in the CNMI between January 1, 1974, and January 9, 1978; (2) classified by the CNMI government as a permanent resident; (3) a spouse or child of an individual covered by (1) or (2); or (4) an immediate relative of a U.S. citizen on May 8, 2008. The legislation is currently pending in the U.S. House of Representatives. The timeline in table 3 summarizes the actions DHS took to implement the final rule on the transitional work permit program for the CNMI. DHS received 146 public comments on its interim rule to establish the transitional work permit program for foreign workers in the CNMI, including comments from the CNMI government, the Saipan Chamber of Commerce, CNMI businesses, and U.S. and foreign workers. The comments expressed concern on a variety of issues, such as the ability of permit holders to conduct foreign travel, the fees associated with the permit, the permit’s validity period, whether foreign workers already living and working in the CNMI should be given first preference for the permits, and whether certain occupational categories, such as domestic workers, should be excluded from the final rule. In its final rule, DHS said that it considered all of the 146 public comments it received on its interim rule and made some changes to the final rule based on those comments. See examples below: Travel. DHS modified the final rule to allow nationals of the Philippines, who made up a majority of the foreign workforce in the CNMI in 2010 according to CNMI Department of Finance data, to travel from the CNMI to the Philippines via a direct Guam transit without violating their CW-1 or CW-2 permit status. Fees associated with the CW-1 permit. DHS modified the final rule to make the petitioner of the CW-1 worker responsible for submitting the $85 biometric fee per worker seeking a work permit in the CNMI instead of requiring the worker to submit the biometric fee. However, according to DHS, either the worker or the employer may pay the fee. DHS also authorized need-based fee waivers for spouses and children applying for derivative CW-2 permits. CW-1 permit’s validity period. DHS clarified the CW-1 permit’s validity period but did not extend it. DHS also provided that, in the case of termination of employment, the worker would have 30 days in which to find a new petitioning employer and would not be considered to have violated the CW-1 permit if the new employer files a petition for the worker within that time. Further, in the case of a change of employment, DHS authorized the worker to begin the new employment upon filing of the new petition. Permit preferences. DHS made no changes to the final rule to give first preference for worker permits to foreign workers already living and working in the CNMI. However, DHS did make a significant change to its work authorization regulations to authorize the continued employment of beneficiaries of CW-1 petitions filed on or before November 27, 2011, for lawfully present workers and pending adjudication of the petitions. According to DHS, this provision allowed large numbers of workers whose work authorization under their former CNMI government-authorized “umbrella permits” expired on that date to continue their employment while USCIS worked through the petitions filed for them. Exclusions of occupational categories. DHS did not exclude any occupational categories from the final rule, such as dancing, domestic workers, or hospitality service workers. DHS said it had considered excluding these categories in the interim rule because of human trafficking concerns. DHS also strengthened the attestations required of petitioning employers regarding compliance with applicable laws, and emphasized the limits on the ability of individual households to petition for domestic workers stemming from the rule’s requirements that established that legitimate businesses file petitions. DHS made other minor changes to the final rule to clarify certain references or remove references that were no longer relevant. In addition to the person named above, Emil Friberg, Assistant Director; Kira Self; Ben Bolitzer; Ashley Alley; Ming Chen; and Reid Lowe made key contributions to this report. Additional assistance was provided by David Dayton, Marissa Jones, R. Gifford Howland, and Julia A. Roberts.

Summary: In November 2009, the United States applied U.S. immigration law to the CNMI, as required by CNRA. To minimize the potential for adverse effects on the CNMI economy, CNRA established a 5-year transition period scheduled to end in 2014. CNRA required DHS to establish a transitional work permit program for foreign workers in the CNMI and annually reduce the number of permits issued, reducing them to zero by the end of the transition period. CNRA also required DOL to determine whether to extend the transition period past 2014, based on an assessment of the CNMI's labor needs. CNRA further required GAO to report on the implementation and economic impact of federal immigration law in the CNMI. This report (1) assesses the status of federal implementation of the transitional work permit program, (2) examines economic implications for the CNMI of pending federal actions, and (3) provides the status of federal efforts to support worker training in the CNMI. GAO reviewed CNRA, U.S. regulations, and information from federal agencies and the CNMI government; and interviewed U.S. government officials and private sector representatives. On September 7, 2011, the Department of Homeland Security (DHS) issued a final rule establishing a transitional work permit program in the Commonwealth of the Northern Mariana Islands (CNMI) for foreign workers not otherwise admissible under federal law. The final rule addressed key requirements of the Consolidated Natural Resources Act of 2008 (CNRA); for example, the rule sets the permit allocations for fiscal years 2011 and 2012. As of July 2012, DHS had processed about half of the petitions for work permits that employers submitted in fiscal year 2012. The DHS decision on its permit allocation for fiscal year 2013 and a Department of Labor (DOL) decision on whether and when to extend the transition period, both required by CNRA, are both pending. DHS plans to announce the permit allocation for fiscal year 2013 by the end of September 2012. DHS has identified one source of CNMI workforce data that it intends to use for its annual work permit allocations. However, the data source does not provide numbers of U.S. and foreign workers by industry, which could help DHS predict future demand for foreign workers. According to a senior DHS official, DHS has not made public the types of information, including its methodology, that it will publish with future permit allocations. Knowledge of DHS's methodology could help allay any public uncertainty regarding future access to foreign workers in the CNMI. DOL has not determined whether to extend the transition period, according to DOL officials, and is not required to do so until July 2014. DOL has identified multiple sources of data on the CNMI labor market, including a source that provides the number of workers in the CNMI by citizenship and industry. DOL has also identified the methodology it plans to use in making its determination. According to DOL officials, DOL plans to estimate changes in CNMI employment and gross domestic product that might result from a reduction in foreign workers. These data sources and analyses could help DHS assess workforce needs and determine its annual permit allocation. Uncertainty about the impact of the pending DHS and DOL decisions on access to foreign workers may be limiting business investment in the CNMI. Foreign workers made up more than half of the CNMI workforce in 2012, and CNMI businesses reported challenges in finding replacements for foreign workers. Some CNMI businesses indicated that uncertainty over pending federal actions has caused them to limit their plans for future investments in the CNMI. DOL, the Department of the Interior (DOI), and DHS made available a combined total of about $6.5 million to train workers in the CNMI in fiscal years 2010 through 2012. DOL provided annual grants that support worker services. DOI provided a grant in 2011 to support on-the-job training programs, in response to CNRA requirements. As of July 2012, DHS had transferred to the CNMI Treasury about $1.8 million it had collected through its permit program for CNMI vocational educational curricula and program development, as required by CNRA. Information on the use of DOL and DOI grants is available to Congress on request, but DHS does not collect information on the use of funds it transfers to the CNMI Treasury. GAO recommends that the Secretary of Homeland Security (1) provide, on publication of its permit allocations, the methodology used and (2) use DOL analyses as a factor in deciding future permit allocations. DHS agreed to publish its methodology but will wait to review DOL analyses until they are available before deciding to use them.