GAO: CNMI’s economy grew in 2016, 2017, dropped in 2018

Although the CNMI economy grew in 2016 and 2017, it plunged in 2018 due to a sharp drop in tourist spending and casino gaming revenue following Super Typhoon Yutu’s severe destruction in October 2018, according to a new U.S. Government Accountability Office report.

Citing CNMI tax data, GAO’s 2020 study found that the ratio of the U.S workers to foreign workers in the CNMI remained close to 50% from 2014 through 2018, with U.S. workers making up 49% of the workforce in 2018.

U.S. workers include U.S. citizens and nationals and citizens of the Freely Associated States—the Federated States of Micronesia, the Republic of the Marshall Islands, and the Republic of Palau. GAO said current available data does not allow for the identification for all persons lawfully admitted for permanent residence.

The Northern Mariana Islands U.S. Workforce Act of 2018 included a provision for GAO to examine the ratio of U.S. workers to other workers over the five previous calendar years in the CNMI.

The GAO report examines recent economic trends in the CNMI through 2018, and recent trends in the composition of the CNMI workforce from 2001 through 2018.

GAO International Affairs and Trade director David B. Gootnick prepared the report.

GAO said the U.S. Department of Commerce’s Bureau of Economic Analysis reports that the CNMI’s gross domestic product grew 28.4% in 2016 and 25.5% in 2017, which reflected continued growth in visitor spending, particularly for casino gaming.

The GDP, however, fell by 20% in 2018, GAO said, with a sharp drop in tourist spending and casino gambling revenues following Yutu’s destruction.

GAO said that, according to BEA, revenue from casino gambling dropped over 50% in 2018.

GAO cited that the parent company of Imperial Pacific International (CNMI) LLC warned shareholders and potential investors that it expected to post a loss for the first six months of 2019, compared with a profit for the same period in 2018.

GAO said IPI’s independent auditor also concluded that the financial information for the first six months of 2019 might cast significant doubts on the ability of the company to continue as a going concern.

On workers, GAO said the size of the workforce grew each year from 2014 through 2017, before contracting by almost 2,000 workers in 2018.

For 2018, the Department of Homeland Security approved about 9,000 CNMI-Only Transitional Worker (CW-1) foreign worker permits, and approved more than 11,000 permits for 2019.

GAO said the Northern Marianas Long-Term Residents Relief Act of June 2019 established a new category of long-term residents in the CNMI, assuming they met certain qualifications.

Applicants under this category must have been lawfully present in the CNMI on the date of the passage of this law on Dec. 31, 2018, and under the immigration laws of the U.S.

The applicant must have resided continuously and lawfully in the CNMI from Nov. 29, 2009, through the date of enactment of the law, must not be a citizen of the Marshall Islands, the Federated States of Micronesia, or Palau, and must meet additional qualifications.

On economy trends, GAO said the CNMI’s GDP, adjusted for inflation, grew every year from 2012 to 2017, but declined in 2018.

GDP, in 2018 inflation-adjusted dollars, grew from $1.022 billion in 2015, to $1.311 billion in 2016, and $1.646 billion inn 2017, before contracting to $1.323 billion in 2018.

BEA estimates that the CNMI’s GDP, adjusted for inflation, increased by 28.4% in 2016 and 25.5% in 2017. BEA attributes this economic growth to exports and services, which reflected continued growth in visitor spending, particularly for casino gambling.

In 2018, inflation-adjusted GDP fell by 20%, which reflected decreases in exports and services and private fixed investment.

According to BEA, exports of services decreased 39%, due to a drop in visitor spending, in particular spending on casino gambling where revenues fell over 50% in 2018.

GAO said a period of growth in visitor arrivals—from about 228,000 in fiscal year 2011 to more than 653,000 in fiscal year 2017—was soon followed by a drop in visitor arrivals in fiscal year 2018 to about 607,000 and in fiscal year 2019 to less than 425,000.

According to BEA, the decline in visitors in early fiscal year 2019 was attributable to Yutu, which devastated the CNMI in October 2018. In November 2018, following Yutu, visitor arrivals in the CNMI plummeted from the previous month’s total of 32,108 to 5,595. This drop also represented an 88% decline from November 2017, when 48,039 visitors arrived in the CNMI.

The composition of visitors by country of residence has also significantly shifted since 2005.

Data from the Marianas Visitors Authority shows that the decline in Japanese arrivals from fiscal years 2005 to 2019 was offset by the increase in arrivals from China and South Korea.

Japanese arrivals declined from about 376,000 in 2005 (71% of total visitors) to about 12,000 in 2019 (3%).

South Korean arrivals increased from about 65,000 in 2005 (12%) to about 192,000 in 2019 (45%).

Chinese arrivals increased from about 32,000 in 2005 (6%) to 186,000 in 2019 (44%).

The CNMI’s Comprehensive Economic Development Strategy 2019 Update indicates the visa-free access to Chinese visitors serves as the linchpin for the CNMI casino investment.

Several federal agencies have investigated and cited the casino operator IPI and its construction contractors. GAO said that IPI and its contractors have been fined for unfair labor practices.

GAO said that, on April 29, 2019, IPI released its 2018 Annual Report, which independent auditors found that IPI has incurred a net loss of almost $3 billion Hong Kong dollars, or about $379 million U.S. dollars, and had accumulated current liabilities greater than this amount, for calendar year 2018.

GAO said the auditors concluded that these conditions, along with others noted in the report, “indicate the existence of a material uncertainty, which may cast significant doubt on the operator’s ability to continue in business.”

On Aug. 30, 2019, IPI released its 2019 Interim Report, in which an independent auditor noted that during the six-month period ending June 30, 2019, IPI incurred a net loss of almost $1.9 billion Hong Kong dollars, or more than $240 million U.S. dollars. The auditor included the same warning of a material uncertainty reported in the 2018 Annual Report.

On Nov. 7, 2019, IPI posted an announcement to the Hong Kong Stock Exchange that it has assisted in an investigation at the request of local enforcement authorities, and provided relevant information and documents as required by enforcement authorities.

On workforce trends, between 2014 and 2018, the ratio of the U.S. to foreign workers in the CNMI remained close to 50%, according to CNMI Department of Finance tax data that identified the citizenship of workers.

In 2018, GAO said, U.S. workers constituted 49% of the workforce. The size of the CNMI workforce grew every year from 2014 to 2017 before contracting by about 2,000 workers, or 5.6% in 2018, according to CNMI tax data.

While the ratio between U.S. workers and foreign workers has remained steady over the past five years, the number and share of foreign workers in the overall CNMI workforce fell significantly from 2001 through 2018.

Over this same period, GAO said, the number of U.S. workers remained more stable, dropping from about 15,500 workers in 2001, to about 13,700 workers in 2018 or a 12% decline in U.S. workers.

U.S. workers represented 30% of the workforce in 2001 and 49% in 2018.

GAO said the Freely Associated States contributed 1,561 workers in 2001 and 954 workers in 2018 to the number of U.S. workers. GAO said this represents a 39% decline in the number of workers from the Freely Associated States.

The overall number of approved CW-1 permits fell from a high of 13,581 in fiscal year 2016 to 9,016 in fiscal year 2018.

The number of approved permits rose by 23% for fiscal year 2019 to 11,093.

However, GAO said, the number of approved CW-1 permits for 2019 was about 2,000 below the updated 2019 cap established in 2018.

The number of CW-1 permits approved by USCIS for fiscal years 2012 to 2015 remained under the annual numeral limits and exceeded or neared those limits for fiscal years 2016 through 2018.

According to USCIS data, most individuals with approved CW-1 permits for fiscal year 2019 were born in the Philippines or China.

In addition, GAO said, the number of permits approved for workers born in China was four times higher in fiscal years 2016 and 2017 than in fiscal year 2015, although that number fell by more than half in fiscal year 2018.

GAO said that, as they reported in 2018, firms involved in building the casino on Saipan have primarily employed Chinese workers.

CW-1 permit data for fiscal year 2019 show that the CW-1 permit holders most commonly worked in building service or food service.

According to CNMI officials, GAO said, the islands continue to rebuild following the devastation of Yutu and that one of their challenges is the limited number of construction workers.

In 2017, when Congress restricted the use of CW-1 permits for the construction trade, employers could continue to petition for construction workers using H-2B visas. In January 2019, because of concerns about overstays and human trafficking, DHS removed the Philippines from the list of countries eligible for the H-2B program. CNMI government officials, among others, had previously voiced concerns that the removal of the Philippines from the list would make it more difficult to hire construction workers in the aftermath of Yutu.

As provided in Public Law 115-218, GAO said, long-term workers may obtain CW-1 permits valid for up to three years and may renew their permits for up to three years during the transition program.

Implementation of three-year CW-1 permits for long-term workers, among other changes, has been delayed until USCIS publishes an interim final rule, according to GAO.

As of Jan. 10, 2020, USCIS’ proposed interim final rule has not been published, but should be sometime in the first quarter of calendar year 2020, according to DHS officials.

GAO said about 23% of fiscal year 2019 CW-1 permit holders had maintained continuous employment in the CNMI since 2015.

USCIS CW-1 permit data for fiscal years 2015 through 2019 show that, of the 11,093 foreign workers with CW-1 permits approved by USCIS for fiscal year 2019, 2,517 workers (22.7%) had maintained continuous employment in the CNMI since fiscal year 2015.

P.L. 115-2018 defines a long-term worker as an alien who was admitted to the CNMI as a CW-1 worker during fiscal year 2015 and every subsequent fiscal year until the enactment of the law in 2018.