GAO: Local GDP could plunge

Pointing to findings they say will harm the CNMI’s economy, Gov. Benigno R. Fitial and officials in his administration are blasting a report released yesterday by the Government Accountability Office that details several scenarios on the impact of the pending federal takeover of local immigration rules and includes projections that suggest it could slash the Commonwealth’s gross domestic product by 50 percent or more.

The GAO report recommends that federal agencies “identify an interagency process to jointly implement” the new federalization law and that the agencies work together to “develop strategies to obtain critical data on the CNMI labor market and foreign investment,” which the Fitial administration views as an acknowledgement that federal authorities lack the necessary research to reach a sound regulatory decision on the issue.

In a statement released Tuesday night, Fitial highlights the shortage of data in the report—noted by GAO at several points in its text—as a key factor and, in light of it, questions whether GAO’s review was either necessary or useful.

“[T]he GAO concludes, even with the most favorable (and unrealistic) assumptions, that the law’s implementation will most probably result in a 50 percent decline in the economic output of the Commonwealth by 2021 if not sooner,” Fitial writes. “If this legislation had been considered on its merits by Congress in light of this GAO report, we cannot believe that the members would have decided to inflict this potentially devastating injury on the Commonwealth.”

Fitial adds that CNMI officials had previously urged GAO to subject the report to independent peer review but the agency declined. In addition, he notes that the local government is now crafting its own economic impact study of federalization.

Rep. Donna M. Christensen (D-VI), chairwoman of the Subcommittee on Insular Affairs, in a statement the same day welcomed the report and expressed optimism that federalization could prove beneficial to the CNMI.

“I am not surprised with GAO’s findings with respect to the job of federal agencies in the coming months,” Christensen said. “This transition can work and be beneficial to the CNMI economy and her people, but it will clearly need a collaborative effort from CNMI leadership and other stakeholders to be a success.”

President Bush earlier this year signed legislation federalizing the CNMI’s immigration and foreign labor rules, a move that the Fitial administration and many local business leaders have said will likely devastate the economy. Proponents of the new law, however, say it will safeguard foreign workers against abuse and stabilize the CNMI’s workforce. Federal officials are now crafting regulations to implement the new law, which are due to be proposed later this year.

GAO’s recognition that federal authorities need more data for decision-making is disturbing given the ongoing effort to craft immigration rules for the CNMI, Howard Willens, the governor’s legal counsel, said in an interview Tuesday

“The report is disappointing in some of its limitations, disappointing in its timing and I wonder whether, given the fact that they don’t really have any economic data with which to analyze the economic impact of the minimum wage and federal immigration laws and any other federal intervention here, they should have restrained themselves,” he said. “It seems to me, if I was at one of the agencies writing the regs, I would want the data that GAO says they don’t have.”

GAO’s report, Willens added, could harm investor confidence in the CNMI’s economy and foster insecurity among local businesses. However, it could also back the administration’s case in a lawsuit it is poised to file against the federal government over federalization’s impact. Lawyers retained by the governor’s office, he added, have recently completed a draft complaint and the governor will soon issue a final decision on whether to pursue the case.

“The report is relevant because what it does, even with all of its limitations, is basically support our conclusions with respect to the federalization law’s deficiencies,” Willens said. “Whether deficiencies of this kind amount to a successful lawsuit is something else.”

Chief among the report’s faults, according to a July 9 response letter the administration sent to GAO on the report, is its assessment of federalization’s projected impact on the GDP of the CNMI. The report suggests—given the range of losses it details under several scenarios—that the GDP of the CNMI could see a “50-60 percent reduction” by 2021, the government writes in its response. News of this could harm the CNMI’s economy severely, it adds.

“This confirmation by a prestigious federal agency of such a serious economic impact on the [CNMI] will have a devastating effect on our small islands, our businesses, our present and potential investors, our 30,000 United States citizens, and all of our residents,” the response said, before requesting that GAO forego publishing the report.

Yet GAO notes in the report that these findings represent “only one possible outcome” that involves “the steepest decline” in the CNMI’s foreign workforce of the possible scenarios presented. Other scenarios examined in the report could have a less serious economic impact, such as one projected to result in roughly a 15 to 36 percent GDP within the next 13 years.

“The actual extent of the legislation’s impact on the CNMI economy will depend on the key federal decisions related to foreign workers, tourists, and foreign investors identified in our report, as well as other factors in the economy,” the report says.

Among those decisions are the amount of permits for foreign workers federal officials will issue each year, whether to extend the permit program, which countries to include in visa waiver programs and how the new regulations will handle foreign investors, as noted in the report.

Nevertheless, Willens said the Fitial administration now faces a serious challenge in addressing GAO’s findings, adding that it will likely consult lawmakers in the near future on how to proceed.

Federal Labor Ombudsman James Benedetto, however, had a less dire interpretation of the report, saying GAO’s review merely analyzed a host of prospective outcomes the CNMI could see as it moves toward federalization.

“I believe that what GAO has done is simply listed options in the universe of possibilities and impacts, ranging from one end of the spectrum to another end of the spectrum,” he said.

GAO officials could not be reached for comment on the report at press time.