Study: Outside aid needed for NMI to recover

The Fitial administration agrees with most of the economic recovery recommendations listed in the recently released economic report that evaluates the impact of federal laws on the CNMI, particularly the need for outside help to enable the local economy to recover.

The report listed eight recommendations for the Commonwealth to achieve economic recovery:

1. Repeal the statute extending the U.S. immigration laws to the CNMI.

2. Provide emergency financial assistance to respond to the economic crisis in the CNMI.

3. Produce better data in order to paint a better picture of what is happening in the CNMI economy.

4. Amend the statute extending the U.S. minimum wage to the CNMI.

5. Provide effective representation in the U.S. Executive branch.

6. Create a stronger partnership between the private and public sectors.

7. Seek federal assistance to small investors.

8. Consider amending the Covenant.

Press secretary Charles Reyes Jr. said the administration supports majority of the recommendations.

“Maybe there’s a controversial portion about renegotiating the Covenant,” he said. “I don’t know if we’re going to take on that recommendation.”

When asked if the administration disagrees with that recommendation, Reyes said he has not discussed it with the governor, and there needs to be further discussion before he says the administration agrees or disagrees.

Reyes said the CNMI could experience relief without renegotiating the Covenant, because the relief needs to come at the U.S. congressional level.

The Covenant doesn’t need to be renegotiated in order to have access to the necessary labor and visitor markets, he said, noting that the administration has grave concerns about the preliminary regulations restricting Russian and Chinese tourists from the visa waiver program.

The administration is open to most of the other recommendations, including seeking federal financial aid, Reyes said.

“After all, we’re in a very tough situation and, arguably, much of this stress will be caused by federal policies if they are not corrected,” he said.

According to the report’s recommendation, the CNMI will not be able to recover without outside help.

“U.S. aid will be required to: maintain an adequate level of public facilities and services; business and housing loans; and economic recovery and development assistance. The CNMI, with a growing economic depression and declining local revenues, does not get a reasonable share of federal expenditures per capita,” the report states. “Furthermore, it is ineligible for some of the most important programs, including unemployment compensation. In fact, the CNMI was not even included in the U.S. trade adjustment assistance laws to assist companies and workers adversely affected by imports to the U.S. The CNMI does not have any real form of economic safety net at this time of economic disaster the seriousness of which few areas of the country ever experience.”

In the past the CNMI had been very successful in raising revenue locally through private sector development, so it depended less per capita on federal revenues than any other U.S. territory, according to the report. The U.S. average federal expenditure per capita was $8,058 in 2006, almost four times that of the CNMI’s per capita federal expenditures of $2,145, the report says.

Although the garment industry would have eventually opted out of the CNMI, Reyes said the minimum wage increase damaged the economy and accelerated the industry’s demise.

The minimum wage increase required further analysis, which unfortunately, the report states, “was not done prior to passage of the legislation.”

Under current law, the minimum wage will increase in 50-cent increments a year until it reaches the federal rate of $7.25 per hour in 2015.

According to the report, possibilities that could be done to modify the statute include: lengthening the period over which the U.S. minimum wage is increased; base increases on some objective standard related to work productivity or establishing an improved special program for increasing the minimum wage.

“The CNMI could have made a stronger case for more appropriate application of the U.S. minimum wage and immigration systems if better local data had been available,” the report states on the recommendation of data requirements.

With better data, the U.S. Department of Labor and the Government Accountability Office could have produced more helpful information.

“It could have been used to demonstrate what was happening to the CNMI economy and to forecast what was likely to happen if those systems were applied in the way they were. The most important requirements are to gather selected information on key economic parameters in as timely a manner as possible and then build a data base as far back as possible for each data series,” the report says.

A few of the key data sets would be: population, employment, wages and salaries, and a few others at some minimal level of industry classification. “The federal government does this and more for the states and some other territories, so they should be persuaded to do it for the CNMI,” it says.

The report does state, however, that a lack of economic data hindered the Government Accountability Office and U.S. Department of Labor from the ability to produce a thorough study.

“Building the requisite data base for an analysis of the CNMI economy is challenging but not impossible. The principal task is reconciling information from disparate sources,” the report states.

For example, the study’s authors, Malcolm D. McPhee & Associates and Dick Conway, used five data sources to estimate employment: the economic census; W-2 reports; census population and housing; the household, income and expenditure survey; and other industry and government tabulations. The study also used the CNMI income and product accounts and the quarterly Economic Indictor report.

Lengthening the timeframe of the minimum wage increase would help limit the suffering of local businesses, Saipan Chamber of Commerce president Jim Arenovski said.

As businesses look at the economy and see revenue decreasing, the yearly wage increase will continue to strain businesses, large and small, he said. A temporary stay or re-evaluation would allow a better understanding of the changes currently taking place.

And it’s not just about the federalization bill, Arenovski added.

“Everybody here, local or contract workers, are going to be starting to suffer or are already suffering,” he said.

As for the federalization lawsuit, Reyes said that is up to the courts. The administration hopes to share the economic report and continue discussions with the U.S. Congress and the new U.S. administration. New CNMI delegate Gregorio Sablan will also engage in discussions.