‘Recommended changes did not affect outcome’

In response to questions raised by two U.S. senators, one of the authors of an economic report looking at the impact of federal laws on the CNMI says drafts were given to officials within the Fitial administration before its release but no major changes were made impacting the final results.

In December, Sen. Jeff Bingaman, who chairs the U.S. Senate’s Committee on Energy and Natural Resources, and Sen. Lisa Murkowski wrote to Malcolm McPhee, one of the authors of the Economic Impact of Federal Laws on the CNMI, questioning sources and assumptions of the study. The federally funded report has been used to support the CNMI’s lawsuit against federalization.

In the 17-page response, McPhee responds point-by-point to the senators’ questions as well as to inconsistencies reported in the Saipan Tribune.

One of the major conclusions in the report states that “under a federalized immigration system, the CNMI will lose approximately 44 percent of its gross domestic product, 60 percent of its jobs, and 45 percent of its personal income by 2015.”

Some of the officials within the Fitial administration—Howard Willens, special legal counsel to Fitial; Deanne Siemer, special legal counsel for the Department of Labor; and Richard Pierce, governor’s special assistant for economic affairs and trade relations, were given draft copies of the report, but their recommended changes did not affect the outcome, McPhee said. Most of the changes recommended by the three were organizational and editing, McPhee said. They did suggest changes be made to the final recommendations included in the report—that federal assistance be given to small investors in the CNMI, and that the recommendation to reexamine the Covenant be taken out. McPhee and Richard Conway, the other author of the study, agreed to include the small investor suggestion but did not agree to eliminate the recommendation to re-examine the Covenant, a recommendation that the Fitial administration has publicly said they oppose.

Also, McPhee said he and Conway saw nothing wrong with the administration using the study to support the CNMI’s federalization lawsuit.

“We had no say in how our client would use the report. We would only have objection to misuse or distortion of the work,” he wrote.

The authors first learned the CNMI was considering a lawsuit March 28 or 29, 2008, at a meeting with CNMI officials, McPhee said, adding that discussions of the project had been taking place since November 2006, when the Office of Insular Affairs gave the CNMI a grant to conduct the study.

McPhee in his letter to the senators said a serious misunderstanding of the report was reflected in many of the senators’ questions.

“This was that we had only offered one scenario and that was the worst case scenario,” McPhee said. “This is simply false. We did offer a Federalization Scenario which was a pessimistic one, but it was not the only one. We also offered a Relief Scenario which was quite favorable and suggested a possible path to recovery by 2015.”

Moreover, the senators missed that the report showed the potential effects of federalization on labor could prevent economic recovery in the CNMI for the foreseeable future, he said.

The authors limited the study to these two scenarios because, MePhee said, “they essentially represent the only two paths facing the CNMI economy in the future. In other words, while many things will influence the course of the economy, the most important one is Congress’ decision on federalization.”

Moreover, he said they could have presented different scenarios based on the extension of the transitional foreign worker program but they would have only been variations of the federalization scenario.

McPhee answers some of the inconsistencies in the data reported in the study, one of which was two differing population figures.

The Economic Impact report states that in 2005 the CNMI population was 70,200 using a mid-year estimate-4,273 more than was reported in the CNMI Household Income and Expenditures Survey.

“When these estimates were reviewed by CNMI analysts, it was pointed out that the 2005 HIES estimate was probably too low, as it was at odds with figures produced by the LIDS system. We therefore adopted a higher number for 2005 and re-estimated the rest of the population series,” he wrote.

McPhee ends his response by admitting that gathering data for the report was difficult, as it was in 1999 when the two conducted a similar study.

“When I was asked to participate in the second study, I knew that the scarcity of economic data for the CNMI would be a problem. I was tempted to decline the offer, contending that a comprehensive and defensible analysis of the CNMI economy was infeasible because of the lack of information. This was essentially the position taken by the U.S. Government Accountability Office and the U.S. Department of Labor,” he said.

But, he added, he decided to take on the project because he knew without a study of this nature the CNMI would continue to lack information on the impact of the two major issues facing the Commonwealth—the loss of the apparel industry and the potential impact of federalization.