‘Outcome of federalization depends on implementation’

The Government Accountability Office’s new report on the pending federal takeover of local immigration rules has sparked controversy linked to its analysis of how “federalization” will impact the local gross domestic product, with Gov, Benigno Fitial and his administration blasting its findings as damaging to the CNMI. Yet GAO has cautioned findings in the report cited by the administration stem from only one scenario among many.

At issue is a section of the report and an accompanying graph that analyzes how reductions in the CNMI’s foreign workforce could affect its economic output. Assuming annual decreases in the number of permits issued to foreign workers and extensions of the so-called “transition period,” this section presents three possible outcomes with a range of consequences for the GDP.

Officials in the Fitial administration have said that the findings seen in this section of the report suggest, based on their interpretation of the data, that federalization would slash the local GDP roughly in half within the next several year, devastating the economy.

However, GAO has said the report cannot be viewed as predictive due to a host of factors outside its scope. Instead, the economic outcome of federalization will depend on how it is implemented, GAO contends.

“Because of foreign workers’ prominence in the CNMI labor market, any substantial and rapid reduction in the numbers of CNMI-only permits for foreign workers would have a negative effect on the size of the CNMI economy,” the report says. “However, federal agencies may make more modest reductions in CNMI-only permits, resulting in minimal effects on the economy.”

The first scenario GAO’s report presents shows that a sharp drop in local permits issued to foreign workers, falling from 20,000 to 1,000 by 2021 would lower the CNMI’s GDP to a range of about 21 to 73 percent of its current value.

Under the second scenario, a staggered decline in foreign workers, dropping from 20,000 to 8,000 in the same timeframe, would lower the CNMI’s GDP to a range of about 64 to 85 percent of its current value by 2021.

And in the last scenario, a much smaller decline in the alien workforce, down from 20,000 to about 17,000 within the same period would lower the CNMI’s GDP to a range of 98 to 92 percent of its current value by 2021.

Examining the range of potential GDP losses, the local government in a response to the report notes that federalization’s economic impact spans from roughly a 25 percent reduction to up to a 75 percent reduction “with the middle 50 percent of the results showing a 50-60 percent reduction in GDP,” data that administration officials have said could shake investor confidence in the local economy.

GAO contends this is an inaccurate interpretation, yet recognizes in a response to the government’s comments that the report finds that reductions in workers could impact the local GDP.

“We found that varying rates of reduction in CNMI- only permits for foreign workers resulting from the agencies’ decisions could decrease CNMI GDP to a range of about 98 percent (minimal impact) to 21 percent (substantial impact) of current levels, holding other factors constant. The 50 percent reduction in GDP noted by the CNMI government represents only one possible outcome in this range.”