[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
CURRENT ECONOMIC, SOCIAL, AND SECURITY CONDITIONS OF THE COMMONWEALTH
OF THE NORTHERN MARIANA ISLANDS
=======================================================================
OVERSIGHT HEARING
before the
SUBCOMMITTEE ON INSULAR AFFAIRS
of the
COMMITTEE ON NATURAL RESOURCES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
Thursday, April 19, 2007
__________
Serial No. 110-17
__________
Printed for the use of the Committee on Natural Resources
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
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or
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COMMITTEE ON NATURAL RESOURCES
NICK J. RAHALL II, West Virginia, Chairman
DON YOUNG, Alaska, Ranking Republican Member
Dale E. Kildee, Michigan Jim Saxton, New Jersey
Eni F.H. Faleomavaega, American Elton Gallegly, California
Samoa John J. Duncan, Jr., Tennessee
Neil Abercrombie, Hawaii Wayne T. Gilchrest, Maryland
Solomon P. Ortiz, Texas Ken Calvert, California
Frank Pallone, Jr., New Jersey Chris Cannon, Utah
Donna M. Christensen, Virgin Thomas G. Tancredo, Colorado
Islands Jeff Flake, Arizona
Grace F. Napolitano, California Rick Renzi, Arizona
Rush D. Holt, New Jersey Stevan Pearce, New Mexico
Raul M. Grijalva, Arizona Henry E. Brown, Jr., South
Madeleine Z. Bordallo, Guam Carolina
Jim Costa, California Luis G. Fortuno, Puerto Rico
Dan Boren, Oklahoma Cathy McMorris Rodgers, Washington
John P. Sarbanes, Maryland Bobby Jindal, Louisiana
George Miller, California Louie Gohmert, Texas
Edward J. Markey, Massachusetts Tom Cole, Oklahoma
Peter A. DeFazio, Oregon Rob Bishop, Utah
Maurice D. Hinchey, New York Bill Shuster, Pennsylvania
Patrick J. Kennedy, Rhode Island Dean Heller, Nevada
Ron Kind, Wisconsin Bill Sali, Idaho
Lois Capps, California Doug Lamborn, Colorado
Jay Inslee, Washington
Mark Udall, Colorado
Joe Baca, California
Hilda L. Solis, California
Stephanie Herseth Sandlin, South
Dakota
Heath Shuler, North Carolina
James H. Zoia, Chief of Staff
Jeffrey P. Petrich, Chief Counsel
Lloyd Jones, Republican Staff Director
Lisa Pittman, Republican Chief Counsel
------
SUBCOMMITTEE ON INSULAR AFFAIRS
DONNA M. CHRISTENSEN, Virgin Islands, Chairwoman
LUIS G. FORTUNO, Puerto Rico, Ranking Republican Member
Eni F.H. Faleomavaega, American Elton Gallegly, California
Samoa Jeff Flake, Arizona
Raul M. Grijalva, Arizona Don Young, Alaska, ex officio
Madeleine Z. Bordallo, Guam
Nick J. Rahall II, West Virginia,
ex officio
------
CONTENTS
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Page
Hearing held on Thursday, April 19, 2007......................... 1
Statement of Members:
Christensen, Hon. Donna M., a Delegate in Congress from the
Virgin Islands............................................. 1
Fortuno, Luis G., the Resident Commissioner in Congress from
Puerto Rico................................................ 3
Statement of Witnesses:
Cohen, David B., Deputy Assistant Secretary for Insular
Affairs, U.S. Department of the Interior................... 26
Prepared statement of.................................... 29
Franzel, Jeanette M., Director, Financial Management and
Assurance, U.S. Government Accountability Office........... 35
Prepared statement of.................................... 37
Tenorio, Hon. Pedro A., Resident Representative to the United
States, Commonwealth of the Northern Mariana Islands....... 6
Prepared statement of.................................... 8
Additional materials supplied:
Williams, Ambassador F. Haydn, Statement submitted for the
record..................................................... 4
OVERSIGHT HEARING ON THE ``CURRENT ECONOMIC, SOCIAL, AND SECURITY
CONDITIONS OF THE COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS''
----------
Thursday, April 19, 2007
U.S. House of Representatives
Subcommittee on Insular Affairs
Committee on Natural Resources
Washington, D.C.
----------
The Subcommittee met, pursuant to call, at 10:00 a.m. in
Room 1324, Longworth House Office Building, Hon. Donna
Christensen [Chairwoman of the Subcommittee] presiding.
Present: Representatives Christensen, Fortuno, Bordallo,
and Flake.
Mrs. Christensen. The oversight hearing by the Subcommittee
on Insular Affairs will now come to order.
The Subcommittee is meeting today to conduct the oversight
hearing on the current economic, social, and security
conditions in the Commonwealth of the Northern Mariana Islands
(CNMI).
Under Committee Rule 4[g], the Chairman and Ranking
Minority Member can make opening statements. If any other
Members would have statements, they can be included in the
hearing record under unanimous consent.
I now recognize myself for my opening statement.
STATEMENT OF THE HON. DONNA CHRISTENSEN, A DELEGATE IN CONGRESS
FROM THE VIRGIN ISLANDS
Mrs. Christensen. As I said, this morning we are holding
the hearing on the current economic, social, and security
conditions of the Commonwealth of the Northern Mariana Islands.
This hearing is the first in a series of two hearings that the
Subcommittee will hold on this issue, and the Subcommittee has
invited the CNMI Resident Representative to Washington, The
Hon. Pete Tenorio. Welcome, Mr. Tenorio.
As we are all aware, the CNMI is the only U.S. jurisdiction
without any formal representation in the House of
Representatives. Absent that formal seat, however, the
Subcommittee views his elected position as the important voice
for CNMI here in Washington, D.C., and in Congress. And we
recognize that when the CNMI is given representation, it will
be their Resident Representative who will join us on this dais.
In the first hearing we will also hear from the Department
of the Interior and the Government Accountability Office. We
welcome also those officials, and note that this Administration
is fully aware of concerns raised by Congress over the past two
decades with regard to the CNMI's control of its immigration
and economic policy, which led to great growth during the
1990s.
Such growth, however, was not only limited to revenue and
lifting the standard of living for CNMI residents, as has been
pointed out in a previous GAO study, the other effect was a
population explosion of non-residents that filled the labor-
intensive requirements of the developing garment industry.
Within a span of 20 years, the CNMI went from a population
of about 15,000 to 70,000, more than half of whom were non-
resident guest workers recruited from mainly China and the
Philippines to work in the CNMI.
I realize that this period of growth, although argued an
economic success by some, is also, on the other hand, a source
of criticism, as well. It would also be negligent for us not to
acknowledge that non-resident guest workers in the CNMI were,
and when I was there in 1997/1998, subjected to labor and human
rights abuses. And it was for these very reasons that in 1995,
Congress passed an initiative creating a Federal Ombudsman's
Office, and increasing the presence of other Federal agencies,
such as OSHA, EEOC, and the Department of Labor's Wage and Hour
Division to inform and assist non-resident guest workers of
their labor rights, and with complaints against their
employers.
To a measurable degree, this initiative and the increased
Federal presence has helped curtail the incidences of abuse and
exploitation, along with the commitment of the Government of
CNMI.
There remains, however, a very difficult challenge that the
CNMI continues to face. Of course, the lifting of World Trade
Organization quotas on exports from China to the U.S. has
negated any competitive advantage the CNMI garment industry
once held. And as a result, the garment industry is all but
shut down.
In addition, tourism, the other pillar of CNMI's economy,
is suffering from discontinuation of direct flights, and that
reduced capacity has closed hotels and businesses.
The Subcommittee is concerned that along with the negative
economic growth, there doesn't seem to be a corresponding
decline in the number of non-resident guest workers, or a
reliable plan in place for repatriation. And the Subcommittee
is also greatly concerned for the security of the Marianas
region. The global war on terrorism and growing threat concerns
in Asia have caused the U.S. to realign and increase its
military presence in the Pacific. We are all aware that plans
are in place to increase military infrastructure in Guam, as
well as training in the region. The additional military
presence makes it even more important that the whole Mariana
Islands chain comprising Guam and the CNMI be secure. This
seems an impossible task, if CNMI continues to have local
control over its borders.
It is clear that the CNMI will have to undergo a
transformation to address the problems it now faces. In order
to move the CNMI forward, there will be the need to resolve
concerns that have been raised in the past, as well as those
that continue today.
The Subcommittee looks forward to the testimony from
today's witnesses, and we should all understand that, despite
all of the problems, there has been progress made in the CNMI,
although there seems to have been some steps backward. We need
to get the CNMI on the right path, and we look forward in this
Subcommittee to working with your leadership, the
Administration, and the CNMI community to do just that.
With that, I would now recognize Mr. Fortuno for any
statement he may have.
STATEMENT OF THE HON. LUIS G. FORTUNO,
THE RESIDENT COMMISSIONER FROM PUERTO RICO
Mr. Fortuno. Madame Chairwoman, thank you for holding
another important hearing concerning one of our Federal
territories, the Commonwealth of the Northern Mariana Islands.
There are many difficult issues facing the CNMI, and I look
forward to exploring them with you. I understand that some of
our Committee staff had the opportunity to visit Guam and the
CNMI during the recess to examine these many issues firsthand,
and that they were very well received by everyone.
It is so important for the residents of our territories to
see that the policymakers in Washington, D.C., care about our
local issues enough to come out and see for themselves the
unique culture of the places they govern.
It is often frustrating for our constituents to be
legislated upon without ever seeing where we live and how we
live, so I am glad that the Committee staff had this chance to
meet with the local leaders and citizens of the CNMI and Guam
in preparation for this hearing today.
While I welcome all of our witnesses today, I want to
especially welcome The Hon. Pedro Tenorio, the current
representative of the CNMI. As you well know, Madame
Chairwoman, we both cosponsored, along with Chairman Rahall and
Ranking Member Young, H.R. 873 in the 109th Congress, a bill to
grant the CNMI a permanent delegate in the House of
Representatives. I look forward to the day a delegate from the
CNMI joins us up here.
For the many economic, social, and security concerns of the
CNMI, I just want to say that while we certainly will not solve
them all here today, we begin the process of creating a fresh
Congressional record on those issues, and that we will be
making our legislative determinations based on the existing
facts and conditions as they stand today in the CNMI, and not
based on circumstances 10, 20, or 30 years ago.
Again, thank you very much, Madame Chairwoman, for holding
this hearing today.
Mrs. Christensen. Thank you, Mr. Fortuno. And now, if there
are no objections, I would like to take this opportunity to
enter into the record the statement of Ambassador Haydn
Williams. Hearing no objection, so ordered.
[The statement submitted for the record follows:]
Statement submitted for the record by
Ambassador F. Haydn Williams
Madame Chair, I thank you for the invitation to testify before your
Subcommittee today. I regret that I cannot be here in person but I
request that my written statement be made a part of the record of this
hearing.
I have had a long association with the Mariana Islands going back
to my Navy days in World War II. Later in the 1950's and 60's, as
Deputy Assistant Secretary of Defense for International Security
Affairs under Presidents Eisenhower and Kennedy, my office had
responsibility for DoD interests in the Pacific Trust Territories
including the Northern Marianas. In the 1970's I was the President's
Personal Representative for the Micronesian and the Marianas Status
Negotiations and on the signing of the CNMI Covenant I was asked by
President Ford to see the Covenant through the House and Senate
approval process. Frequent visits to Saipan in the 80's and 90's kept
alive my interest in the NMI along with my efforts to win Congressional
support and funding for building the Memorial to our war dead in the
battles of Saipan, Tinian and the Philippine Sea in the American
Memorial Park on Saipan.
My message, my hope is a simple one. It is time for the Congress to
act, to take a hard critical look at the current situation in the CNMI
in the best interests of the ordinary citizens in the Commonwealth and
the broader interests of the United States. The Committee is well aware
that the CNMI today is in dire economic straits and has turned to
Washington for help. With the changes in the House this hearing is very
timely. It is my hope that among other things, particular attention
will be given to immigration matters and the need to control America's
western most borders in the far Pacific.
In addressing current conditions in the NMI, a brief look back at
the Covenant negotiations may be useful--to remember the times, the
context, the spirit in which the talks were conducted. The goal, the
long held desire of the people of the NMI was to become a permanent
part of America. Two issues were preeminent: U.S. sovereignty and the
rights of internal self-government. Once these critical questions were
agreed to in principle, the negotiations turned to what Federal laws
would apply to the new commonwealth.
Members of the Marianas negotiating team were especially concerned
about the possible impact of U.S. immigration laws on their island
culture. They were worried that their Chamorro and Carolinian heritage
might be overwhelmed by a heavy influx of peoples from Asia. They
wanted protection, assurance that this wouldn't happen. The threat of
war refugees streaming into the NMI from Southeast Asia was also on
their minds. They thus asked that the control of immigration be in
their hands to enable them to restrict the numbers of aliens entering
their islands.
While understanding their concerns, the U.S. could not accept this
proposal. It agreed however, that in a transition period, awaiting the
end of the UN trusteeship and before the coming into force of U.S.
sovereignty, the new Commonwealth government would be given
transitional responsibility for immigration. Under Section 503 of the
Covenant, it was clearly stated and agreed that the U.S. Congress
retained the ultimate authority to make U.S. immigration laws
applicable to the CNMI.
It was anticipated at the time of the negotiations that such action
would be taken quickly by the Congress upon termination of the
trusteeship--given the known attitude of leading Members of Congress
regarding territories and immigration. But instead of a couple of years
of transition, with the CNMI in control of immigration, ten years
elapsed between the approval of the Covenant by the United States in
1976 and the UN termination of the Marianas Trusteeship in 1986.
This far, far longer than expected interim period, enabled largely
foreign and other non-indigenous investors and entrepreneurs to
capitalize on the Covenant's liberal export privileges and wage and
immigration exemptions to establish their presence and influence in the
CNMI and to begin importing increasingly large numbers of low-paid
alien workers for their garment factories.
It was during this transition period that local CNMI political and
business opposition to any Federal implementation of Section 503 became
institutionalized. This opposition led and largely funded by the
garment industry was committed to blocking, with the help of hired
Washington K Street lobbyists, any action by the Congress on labor
matters, minimum wages, and immigration.
The opposition's success in Washington, especially in the House in
recent years is well documented. The results in the CNMI is another
story. CNMI immigration policies far from protecting the islands social
and cultural heritage has seen a population explosion of over 500% over
the past 30 years turning the indigenous people into a small minority.
The impact on the environment, the infrastructure and island life has
been equally deleterious.
Three Administrations beginning with President Reagan have each
voiced deep concern over these developments. The Senate and some
members of the House too, have long recognized the need for
Congressional remedial action. In 2001, the CNMI Covenant
Implementation Act, authored by Senators Murkowski and Akaka and
endorsed by the Clinton Administration called for the extension of U.S.
immigration laws to the CNMI with reasonable and orderly transitional
measures and exemptions. The Act was passed unanimously by the Senate
in 2001 strongly supported by the new Bush Administration. Regretfully
this Senate initiative died in the House without even a hearing for
reasons that are now well known.
The House, under new leadership, now has an opportunity to act. It
is my understanding that legislation regarding the Marianas is moving
forward in the Senate. It is my hope that this time the House will
consider what comes out of the Senate favorably or similar legislation
of their own making which addresses the current situation in the CNMI.
In your Subcommittee Hearing I also hope that the Chair and the
members will pay special attention to border security. Today we are no
longer living in a soft security environment and it has been reported
by the Justice Department that critical security vulnerabilities have
existed in the CNMI for several years. Needed control over who enters
the CNMI was one of the principal reasons cited by the Bush
Administration in support of the Murkowski-Akaka Bill in 2001. Indeed
in view of heightened international terrorism and the Marianas
strategic location, the Federal government's responsibility for
protecting the people of the CNMI and all American citizens has taken
on a new and urgent importance.
Lacking an international status the CNMI simply does not have the
institutional capacity to adequately pre-screen or screen persons
entering the Commonwealth. Border control is an inherently sovereign
function, repeat, an inherently sovereign function and in the present
threatening world security environment and the expanding reach of
global crime syndicates, the responsibility for protecting the nation's
borders in the NMI should be in the hands of the Federal government.
U.S. control of immigration in the CNMI should not be seen as a
threat to the Islands' economy. As far back as the Covenant
negotiations, the U.S. was fully sensitive and sympathetic to the NMI's
legitimate need for imported labor to help it reach its goal of
economic self-sufficiency. This same understanding was evident in the
Murkowski-Akaka Bill. It stated that S. 507 extending U.S. immigration
laws to the Marianas Commonwealth would be carried out ``in an orderly
manner with a commitment...to mitigate any adverse effects...on the
local economy.'' The bill further delineated how the law could help
diversify, stabilize, and strengthen the local economy.
The growth of the CNMI economy based largely on unlimited low cost
alien labor is like a castle built on sand, a false unsustainable
economy. What is needed is a new, more stable, more realistic,
sustainable economic foundation for the future. I am confident that
with goodwill, open on-going communications, trust and cooperation
between Saipan and Washington the current situation can be gradually
improved. I also firmly believe that Federal legislation that will call
for the orderly application of national immigration laws to the CNMI
will have positive long term benefits for the people of the NMI.
Indeed it is time for the Congress to take this long overdue
action. Clearly the successful blockage of past legislative action in
the House has been detrimental to the CNMI and to U.S. security
interests. It is also time for Interior and the Administration to
support this latest Congressional initiative to exercise its authority
under Section 503 of the Covenant as originally extended.
Thank you Madam Chair for giving me the opportunity of presenting
my views on this importance subject matter that is before your
Subcommittee.
______
Mrs. Christensen. Now I would like to recognize the first
panel. The Hon. Pedro A. Tenorio, Resident Representative of
the Commonwealth of the Northern Marianas.
Mr. Tenorio, you will be recognized for five minutes. The
timing lights are on the table, and will indicate when your
time has concluded. And you may begin.
STATEMENT OF THE HON. PEDRO A. TENORIO, RESIDENT
REPRESENTATIVE, COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS
Mr. Tenorio. Good morning and Hafa Adai, Chairwoman
Christensen and Ranking Member Fortuno, Members of this
Subcommittee.
This room, this great hearing room, represents to me a
very, very pleasant memory, as it was in this room that I, as a
member of the Marianas Political Status Commission, first
testified in front of the Chairman and good friend, Philip
Burton from California. So it is so good to be back here.
The events that have unfolded this past Monday, April 16,
at Virginia Tech have affected the entire nation. My people
join me in extending our sorrow to the families of the victims,
and to the entire community in Blacksburg. We join the rest of
the country in prayer and in mourning.
Thank you for inviting me to testify. The people of the
Commonwealth appreciate your courtesy in affording me the
opportunity to speak on their behalf. As this committee is
fully aware, the Northern Marianas is the only territory in the
United States without representation in the Congress, so I am
very grateful for this opportunity to speak about issues that
are important to all of us.
I want to especially acknowledge that if it had been up to
the Members of this Subcommittee, the Northern Marianas would
have had a delegate years ago. The people of the CNMI are very
grateful for your ongoing support and assistance.
I also want to congratulate this Subcommittee on its plan
to hold a field hearing in the CNMI. This will be the first
ever held by Congress in the Commonwealth, and I applaud you,
Madame Chairman, Members, for your desire to hear not only from
our various government officials, but also from the people we
represent.
Madame Chairwoman, the current economic condition of our
islands is very disturbing. It disheartens me to report such
findings.
A little more than a decade ago, the CNMI was hailed as an
example of a successful young American democracy with an
economy well on its way to self-sufficiency and financial
independence. I now fear that our economy is swiftly becoming a
disaster and a failure.
It is indeed a shame that anyplace in America can be
described this way. Our economy needs to be rescued before a
total meltdown takes place. Now more than ever, Congress, if it
can do something, should exercise its oversight, authorize
emergency financial resources, and provide technical assistance
to help us avoid economic and social chaos.
The average family in the Northern Marianas is greatly
challenged today to not only make ends meet, but to survive.
With the highest electrical rates in the country, few can
afford hot showers or air conditioning. Some not only unplug
microwaves and DVD players when not in use to save a few watts,
but also unplug the refrigerators at night. They have stopped
cooking on their electric stoves, and now use firewood or
propane for cooking.
Food is getting more expensive because the cost of shipping
is no longer defrayed by the garment industry, and many
families are having a tough time keeping food on the table. The
cost of gasoline is much higher than the national average. And
even though our islands are small, a family's only car will
drive many miles in a day taking parents to work and children
to their schools.
A once idyllic lifestyle--barbecues at the beach and large
family gatherings--is now marred by signs of desperation.
It is difficult to document these social problems. We have
few safety nets that normally protect society from the adverse
consequences of poverty. We do not have unemployment programs
or temporary assistance for needy families. We have a small
food stamp program that I worry will not be able to expand to
meet future needs.
The public health and public safety needs of the community
are also in jeopardy because the health insurance and medical
services continue to escalate, and many will not seek medical
attention because they simply cannot afford it any more. The
rate of diabetes and heart disease in the CNMI is among the
worst in the world. Rising levels of crime is proof of the
growing desperation among those trying to survive.
Our inability to adequately fund both public health and
public safety puts many lives at an unnecessary risk. These
desperate social and economic conditions have been an impetus
for hundreds of Chamorros and Carolinian families to sell or
lease their property at extraordinarily low prices just so that
they can purchase one-way tickets and relocate to Guam, Hawaii,
or the mainland. If this exodus continues, I fear that we will
lose many of our highly trained and skilled local people to
these other areas.
We are also expecting that our young college graduates who
have achieved their higher education at great government
expenses will continue the trend of not returning to the CNMI,
as there is little opportunity in their homeland.
This should not be happening to our people, but our
economic troubles have brought us to this new reality. This is
not the Commonwealth I envisioned 30 years ago when they signed
the covenant. And as a member of the Political Status
Commission, on behalf of our people, this is certainly not the
Commonwealth that we should leave behind as a legacy to our
children.
If the goal of this committee is to transform CNMI
immigration into a Federal framework, I urge Congress to please
proceed carefully. Congress must ensure that the outcome is
positive and beneficial to both sides.
I look forward to working with you to successfully develop
a more lasting framework for the CNMI. I maintain my position
on that normalization of our immigration outline on February 8,
before the Senate Energy Committee, and I have included it in
my written testimony submitted for this hearing.
Last, Madame Chairwoman, I request that the prior work of
this Subcommittee and the larger Resources Committee continue.
I am speaking of the people of the CNMI's quest for
representation in Congress. I think that is a matter of simple
democratic principles that the CNMI be afforded the right to
representation before Congress proceeds to dismantle and
hopefully review the economic framework of the Commonwealth.
The people of the CNMI should not feel that we are at the
mercy of our critics, or that we are being punished for
mistakes made in the past. To quote my dear friend, that
honorable Congresswoman from Guam, she stated, ``Representation
in American democracy is an inalienable right for American
citizens, and not one that is contingent upon a litmus test.''
The well-being of my people is literally at stake. I am
greatly concerned about the ongoing reduction of public
services in healthcare, basic sanitation, clean and adequate
water and public safety. We have been the plaything of
political opponents for too many years. I desperately want
reason to prevail in any Congressional actions that will affect
the CNMI.
Madame Chairwoman, let us proceed in a logical manner. I
would prefer that prior to the introduction of any other
legislation, that the CNMI Delegate Bill will be reintroduced
and acted on first.
Thank you for this opportunity to address you this morning.
[The prepared statement of Mr. Tenorio follows:]
Statement of The Honorable Pedro A. Tenorio,
Resident Representative to the United States
Hafa Adai, Madam Chairwoman, Congressman Fortuno, and Members of
the Committee. Thank you for holding this hearing and for this
opportunity to share with you my thoughts on issues relating to the
current economic, social and security conditions in the Commonwealth of
the Northern Mariana Islands. While I understand that the focus of
today's hearing is a federal perspective on the issues at hand, we in
the Commonwealth appreciate your courtesy and willingness in affording
the Resident Representative an opportunity to speak on behalf of the
United States citizens residing there. As this committee is fully
aware, the Northern Mariana Islands is the only place in the United
States without representation in Congress, so I am very grateful that
this subcommittee has lent me its ears.
An Historical Perspective:
The Northern Marianas had known almost 400 years of colonial rule
and subjugation prior to the 1947 United Nations Mandate which created
the Trust Territory of the Pacific Islands. In 1975 when we had the
opportunity to vote on our own future, America's global reputation was
very low, its foreign relationships weak, and it was losing the respect
of its own citizens. Yet we chose overwhelmingly by 78% to become a
permanent part of this great nation. As a member of the Marianas
Political Status Commission, I worked hard encouraging my people to
choose this path as I felt it would be the best option for our future
and our children's future. I convinced them that American is a fair and
compassionate Nation, one that takes care of its own people; fairly,
equally, and without question. I continue to believe in these promises
and principles; and the goodness and generosity of America to take care
of its diversified population of minorities, immigrants, and Native
Americans. So in spite of our enormous and difficult challenges, I
believe that Congress can and will help us develop solutions so that we
can move forward along a path that will bring us to prosperous future
consistent with the American Dream.
While the majority of the American citizens of the CNMI strongly
believe in our relationship with the U.S. we have those in our islands
who want to re-invent the Covenant and renege on this long established
agreement negotiated in good faith.
The Economic Perspective:
Madam Chairwoman, our economy is in dire straits. It disheartens me
to report such findings because it was a little over a decade ago, in
front of this very committee that the CNMI stood as an example of a
successful young American democracy with an economy that was well its
way to self-sufficiency and financial independence. I fear now that our
economy is swiftly becoming a basket case and a failure. It is indeed a
shame when any place in American can be described this way. I am here
today to appeal for assistance in getting us out of this serious
predicament. Now, more than ever, Congress must and should exercise its
oversight, expend its resources and provide technical assistance to
help us avoid economic and social chaos.
There are two primary economic engines in the CNMI: apparel
manufacturing and tourism. Both are suffering from downturns caused by
external factors. Trends in international trade agreements have left
our apparel industry less competitive than those in countries such as
China, Vietnam, and India. In 2000 we had 34 operating factories. By
the end of this month we will have only 13, and I expect two or three
more will close in the near future. The outcome of H.R. 2, The Fair
Minimum Wage Act of 2007, and our request to amend General Note 3(a)
will determine the longevity of the industry. A primary measure of the
health of this industry has been the amount they pay in user fees to
the CNMI Government. Chart 1 of the Attachment tracks the demise of
this industry since 1999.
The other primary industry in the CNMI is tourism. This has also
been adversely affected by circumstances beyond our control such as the
price of aviation fuel, unprofitable tour packages, and availability of
air service. Arrivals have been on the decline since 1996 as displayed
in Chart 2 of the attachment. Japan Air Lines has eliminated flights to
the CNMI and Continental Airlines has been reducing flights for some
years. We have lost one commuter airline making it more difficult to
reach Tinian, Rota, or Guam. Just recently Northwest Airlines has
announced a reduction in flights and a conversion to smaller aircraft.
Northwest alone will be carrying 169,000 less passengers with these
changes. In addition, tourists have decreased their average length of
stay and the amount of money they spend while in the CNMI.
Not only do these two industries support much of the other private
sector activity, they directly provide a significant share of
government revenue. The government reduced its revenue projections last
year from $212 million to $193 million last year due to declining
revenue collections. It has further reduced its revenue collection
projections for FY 2007 to $163 million, or 25% in just two years. As
you can see from Chart 3 of the attachment, we have been experiencing
this downward trend since 1999.
Governor Benigno Fitial implemented strict austerity measures last
year including the implementation of austerity holidays where most
government employees receive one day of unpaid leave per pay period.
While we finished FY 2006 without adding to the deficit, those cuts are
not sufficient to meet the new budget level of $163 million. The
government is still trying to determine how to make the additional
budget cuts, but will have to either cut salaries more or reduce
positions. Either decision will hurt people, and further hamper the
economy. We do not anticipate any reversal of this trend in the near
future, and in fact expect government revenues to be reduced by an
additional $15 million at least for next year.
We are also faced with a significant government operations deficit
of $174 million. You will ask yourselves, how a population of less than
70,000 people with limited long term obligations could have over spent
their annual budgets by this amount in just 30 years. Our own
Retirement Fund is a perfect example of the government's inability to
pay obligations.
Our public employees' retirement system is in a mess and is in
danger of becoming insolvent, especially if the current government
practice of not paying the employers' share continues. With penalties
the government debt to the Retirement Fund is close to one hundred
twenty million dollars and no payments are predicted for the rest of
this fiscal year and possibly not for next fiscal year. The Retirement
Fund is forced to dip into its investment revenue and capital to make
annuities payments. If this practice continues the Fund will bleed its
investments to death. To make the matter worse, many current government
employees are withdrawing their contribution to the Fund. The security
of all current retirees, as well as those who have yet to reach
retirement age is at stake. There is absolutely no excuse for allowing
our retirees who have worked hard for our government and our people to
be faced with this dilemma. They deserve better treatment and
protection from their government.
Madam Chairwoman, the economic situation in the CNMI continues to
erode. It is almost impossible to bring in new investors at this time.
The uncertainty of minimum wage and availability of workers leaves
prospective investors with more questions than answers. How can they
develop their business plans if they do not know if they can hire
workers, or know what they will be paying those workers? While we have
been suffering from this economic downturn for a number of years now,
the current interest by Congress to address labor and immigration
control is only adding to the problem and making everything much worse.
The Social Perspective:
Madam Chairwoman, it is difficult to document the social problems
that are due to our economic condition. We have few safety nets that
normally protect society from the adverse consequences of poverty. We
do not have unemployment programs or Temporary Assistance to Needy
Families (TANF). We have a small food stamp program that I worry will
not be able to expand to meet future needs. Fortunately our close knit
extended family social structure has been able to mitigate to some
extent. We are seeing one or two breadwinners providing for the needs
of all those in a family housing compound. I and other elected
officials are asked daily for money so that fathers can feed their
children.
As government revenues continue to decline I grow increasingly
concerned about our ability to adequately fund public safety. Crime is
on the increase. Purse snatching and other crimes against tourists are
on the rise. There have been several incidences where people have
resorted to stealing copper from telephone lines, power lines, and drop
lines which provide power to water wells in order to sell them to
recycling centers. We have been successful in prosecuting these crimes
but the damages result in over a $100 thousand in replacement and
repairs not to mention serious disruptions in basic services.
Declining revenues also have frightening prospects for our public
health. You may be already aware that the CNMI has one of the worst
rates of diabetes and heart disease in the world. The decline in
revenue has forced the government to cut the number of medical
referrals thus endangering the lives of patients in need of specialized
care. The increase in unemployment has led to an increase in Medicaid
eligibility. This committee is all too aware of the problems we face
with existing Medicaid caps, and even though Congress has recently
increased that cap, we will be playing a game of catch up.
These dire social and economic conditions have been an impetus for
hundreds of Chamorro and Carolinian families to sell or lease their
homes and lots at extraordinarily low prices just so that they can
purchase one-way tickets and relocate to Guam, Hawaii, or the mainland.
If this exodus continues, I fear that we will lose many of our highly
trained and skilled local people to other areas. We are also expecting
that our young college graduates, who have achieved their higher
education at great government expense, will continue the trend of not
returning to the CNMI as there is little opportunity in their homeland.
This should not be happening to our people, but our economic troubles
have all brought us to this new reality. This is not the Commonwealth I
envisioned thirty two years ago when I signed the Covenant on behalf of
our people. This is certainly not the Commonwealth that we should leave
behind as a legacy to our children. ]
The cost of utilities, food items, fuel, education, shipping,
medical services, and other essential amenities increase almost daily.
The price of utilities has skyrocketed uncontrollably, so much so that
during this last Christmas the normally joyous and festive spirit of
the islands displayed by beautiful Christmas lights on businesses,
hotels, homes and even the public sidewalks was absent, replaced by
empty darkness. Usually a season of love and hope Christmas had become
a sobering reminder of just how much our people are suffering.
Madam Chairwoman, I could go on and on with the depressing
scenarios people in the CNMI face. We must admit, however, that these
challenges are so daunting and tough for us alone to tackle. I feel
that we simply cannot survive on our own. I am here to request for your
intervention and assistance.
Immigration Initiatives:
Legislation that is developed without due consideration of existing
socio-economic conditions in the CNMI will have a profound and negative
effect on our economy. A 1997 U.S. Commission on Immigration Reform
report stated that ``immediate imposition of all parts of the
Immigration and Nationality Act would harm the CNMI's economic
development. Moving a society that has become so dependent on foreign
contract labor towards a more sustainable economy cannot occur
overnight.''
Those words were true in 1997 and they are even more true today. If
the goal of this committee is to normalize CNMI immigration into a
federal framework, we urge Congress to proceed carefully as this is a
very complicated endeavor. It must be guaranteed that comprehensive
economic and social statistics reflecting current conditions and
realities are carefully collected and evaluated so as to ensure that
the outcome of normalization is positive and beneficial to both the
CNMI and the federal government.
At the time of our negotiations, tens of thousands of Southeast
Asian refugees were arriving in Guam under U.S. immigration policy, and
we were fearful that full implementation of the INA would allow those
and other U.S. immigrants to migrate to the CNMI. We felt that the
early years of our status as a U.S. Commonwealth should be focused on
building a stable economy.
On the other hand, we recognized that we needed a larger labor
force than we had to build our infrastructure, hotels, and other
business establishments. It was our intent that the need for these
workers would be temporary. Though some are critical of how we built
our economy through local control of immigration, that criticism does
not negate the need for skilled workers that are not readily available
from elsewhere in the U.S. or its freely associated partners.
When the Covenant was being negotiated, all sides assumed there
would be a significant United States presence in our islands from a
buildup by the Department of Defense. One of the more difficult issues
to resolve, but one we were willing to accommodate the United States
on, was the land requirements that the United States wanted for defense
purposes, including use of our main harbor area and the most productive
agriculture lands on Tinian. We all anticipated that the buildup would
not only jump start our economy as the infrastructure was constructed,
but would provide a long term stable base for private sector growth in
small businesses as well as local employment. The model we all
considered was Guam.
That did not happen and as we continued to develop from the mixed
subsistence/cash economy under the Trusteeship, the principal source of
employment became the public sector as we struggled to provide services
to our residents at mainland standards. Tourism gradually developed,
but also took a toll on our resources and demanded workers and skills
not available within the local population. Garment manufacturing began
in Guam, but found a home in Saipan. In retrospect we probably should
have paid closer attention to the demands that industry placed on our
services and also on our resources, but nonetheless, the textile and
tourism sectors form the backbone of our private sector and the source
of the revenues our government requires to provide services to our
residents. Hindsight is a wonderful gift, but we need to deal with
where we are now rather than with the economy that we anticipated
thirty years ago when this Committee considered and approved the
Covenant.
We are here to participate in a serious process with the
Subcommittee and the Congress to ensure additional mistakes are not
made, but more importantly, what can we do to rebuild our local economy
and alleviate the burdens of my people. When the Covenant was
originally negotiated, as this Committee will recall, a provision was
included that provided an annual grant for operations for our local
government. The grant was slowly transformed to eliminate any payments
for operations and to dedicate the funds exclusively to infrastructure
development and for replacement of the aging works installed during
Japanese Mandate and Trust Territory of the Pacific Island government
times.
I mention this because sometimes in looking at the current problems
we forget how much progress has been made since the Covenant first went
fully into effect only about twenty years ago. This Committee has been
particularly sensitive over the years to how the territories differ
from the mainland and in some cases from each other and how mainland
standards don't always work in non-contiguous areas. We have been
fortunate over the years that this Committee is well represented from
these non-contiguous areas and there fore has a greater understanding
of our promises and problems. For that reason, if Congress chooses to
extend U.S. immigration laws to the CNMI, we will need to look to you
to craft the provisions that ensure a smooth transition and strengthen
the local economy.
I will be proposing a series of CNMI specific amendments to U.S.
immigration policy which will accomplish this. By no means is this list
exhaustive or complete, but rather a starting point for further
discussion, and is basically the same list that I provided the Senate
Energy Committee at their hearing on February 8th.
First, I request that Congress provide us with our own Visa Waiver
Program similar yet distinct from Guam's Visa Waiver Program. Much of
our tourism planning focuses on new markets in China and Russia.
Several years ago with the assistance of the U.S. State Department, we
were granted Approved Destination Status by the People's Republic of
China. That designation and market as well as the Russian market would
be cut off to us without a visa waiver program.
Second, as you know we have a very small indigenous labor pool, and
have turned to guest workers to build our economy. Whether it be for
doctors, nurses, engineers, cooks, or hotel maids, applying existing H1
and H2 caps to the CNMI would disrupt our health care system, our
government and our economy. Therefore I request that special provisions
be made outside of standard H1 and H2 caps and rules for the CNMI.
Third, since many of our businesses are owned and operated by
foreign corporations and were begun under our own immigration rules, I
am concerned that normalizing immigration might disrupt these
businesses if they are not grandfathered in to the new system.
Likewise, as we are trying to attract new investors into the CNMI, I
fear that the existing cumbersome, slow and overly bureaucratic
processing system for standard H1 visas would be a deterrent to our
economic recovery. Therefore, I request that special provisions for
current and future foreign investors be included in any legislation.
Fourth, we have been criticized for building our economy on two
labor intensive industries, i.e. apparel and tourism. To change this we
will need federal financial assistance and guidance to diversify our
economic base beyond these two. However, the CNMI's indigenous
population is still not large enough to provide for an adequately sized
labor force to support a sustainable economy and will thus greatly
limit our options to widen our economic base. Therefore, immigration
policies must be sensitive to the workforce and training needs that
will arise from a shift in available jobs required by new industries. A
specifically and carefully designed guest worker program to meet the
CNMI's workforce requirements must be an integral part of a new
immigration framework.
Fifth, our proximity to Asia makes the CNMI an excellent location
to provide specialized training such as English for Asian businessmen
and students and nursing NCLEX prep classes. We currently provide NCLEX
prep classes to Asian nurses, who upon passage come to the U.S. to fill
a void created by a severe nursing shortage. I understand that U.S.
student visas are now very difficult to acquire. Within a visa waiver
program, I request that special consideration be granted to the CNMI
for foreign student visas.
Sixth, several years ago the CNMI negotiated an MOU with various
federal agencies to provide for the enforcement of U.S. treaty
obligations relating to refugees and asylum. Full implementation of the
INA in regards to refugees and asylum seekers may have adverse
consequences for both the CNMI and the U.S. Careful study of the
situation is required and possibly delayed implementation would be
best.
Seventh, it was the intent of the Covenant to preserve the Northern
Marianas for its indigenous people. Too many times in the history of
the U.S. we have seen indigenous peoples displaced and outnumbered
leaving them a political and economic minority in their own homeland. I
caution the Committee to be careful in the construction of a new
immigration framework so as to avoid the political and social
alienation of the Chamorro and Carolinian peoples.
Eighth, create an immigration board comprised of both local and
federal government for the purpose of periodically reviewing the
effectiveness of regulations promulgated under this new law, to make
suggestions and amendments.
Ninth, I respectfully recommend that extensive study, deliberation
and consultation be included in developing this new framework. I
recommend that a joint congressional, administrative, and CNMI study
group be formed to thoroughly study all aspects of the CNMI's economy,
current immigration laws, and long term economic prospects as a crucial
step in developing a new immigration policy for the CNMI. It has taken
the CNMI three decades to reach this point in our development. Only
through careful consideration can we move the CNMI toward economic
recovery and into a new era of prosperity while returning us to a state
of self sufficiency and stability that we once enjoyed.
In essence, Madam Chairwoman, this Committee is embarking on a long
and difficult voyage. We acknowledge without question that Section 503
of the Covenant specifically allows Congress to extend the immigration
and naturalization laws to the CNMI. Furthermore, I respectfully
emphasize that Section 701, requires the U.S. to ``assist the
Government of the Northern Mariana Islands in its efforts to achieve a
progressively higher standard of living for its people as part of the
American community and to develop its economic
resources...'' I am looking forward to working with your
Subcommittee to successfully merge these two important fundamental
principles of our political agreement into a new reality for the
Commonwealth.
Call for a Delegate:
The CNMI is currently blessed, though some may say it is cursed,
with a great deal of attention by the U.S. Congress. Since the
beginning of the year we have been visited by two staff delegations,
one from the Senate and more recently one from this subcommittee. This
is the second hearing that has been convened to examine our current
situation.
This attention has been met with a variety of responses from the
CNMI. There are some who welcome Congressional intervention as they
believe that we have strayed from our original goals, and that we need
help to get back on track. There are others that feel that this
attention is unwarranted and unnecessary and that we are doing ``just
fine, thank you.'' I however, believe that for the most part,
Congresses intentions are honorable and that there is no real desire by
any member to destroy us. I honestly believe that Congress would like
to see us succeed, but sees a need to alter the rules under which we
operate.
Madam Chairwoman, it is my intention to work with this committee
and any congressional committee that desires to re-visit the Covenant
under which the CNMI was created. I feel that it is much better to be
involved and participate in any discussions or legislation that may
affect the CNMI.
However, I feel that the manner in which Congress is proceeding is
unfair. Not only was it anticipated that the CNMI's control over
immigration be terminated at some point by Congress and that the
Immigration and Nationality Act would apply, it was also anticipated
that the CNMI would be represented in this esteemed body as all other
non-state entities are. Since Congress did not extend the INA to the
CNMI in 1986 when the Trusteeship Agreement was terminated, and since
local control of immigration has become an essential tool in our
economic development, it is easy to interpret Congress' desire to
normalize or federalize our immigration now as political, vengeful, or
retaliatory.
Even though you have extended to me as the Resident Representative
some honorary privileges as if I were a Delegate, it is simply not the
same. I cannot sit with you in subcommittee meetings; I am not privy to
classified documents that detail how CNMI control of immigration is an
alleged threat to national security; I cannot speak for the CNMI on the
floor of the House of Representatives; nor can I defend my people
except as an invited witness at hearings such as this one.
I think that it is a matter of simple democratic principles that
the CNMI be afforded the right of representation before Congress
proceeds to dismantle and hopefully rebuild the economic framework of
the Commonwealth. The people of the CNMI should not feel that we are at
the mercy of our critics or that we are being punished for mistakes
made in our past. Neither behavior nor performance should not be used
as a litmus test in the granting of a delegate for the CNMI.
The well-being of my people is literally at stake. I am gravely
concerned about the ongoing availability of health care, basic
sanitation, clean water and public safety. We have been the plaything
of political opponents for too many years. I desperately want reason to
prevail in any congressional actions that will affect the CNMI. Madam
Chairwoman, let us proceed in a logical manner. I respectfully request
that prior to the introduction of any other legislation that the CNMI
Delegate bill be re-introduced and acted on first.
Thank you.
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Mrs. Christensen. Thank you, Mr. Tenorio.
Reminding the Members that the Committee Rule 3[c] imposes
a five-minute limit on questions, the Chairman will now
recognize herself for questions, then recognize Members in the
order in which they arrived.
I have to tell you that even reading the testimony
preparing for this hearing and listening to you this morning,
it is very troubling to hear the enormity of the crisis that
exists in the CNMI. Having traveled there, I had a very nice
trip; it was really in some of the better times for CNMI, even
though there were many problems that existed back then, many of
which were addressed. And I have just read that school will
also be closing two months later, so that is an additional--or
will open two months later. That is an additional issue that
tells us just how serious the situation is.
I appreciated your testimony. It contemplates the extending
of U.S. immigration policy to the CNMI, and your willingness to
work with us to work out a compromise. And your suggestions are
very helpful.
Apart from that, with respect to anything immediate that
Congress should consider to assist the CNMI, do you have some
maybe three specific areas that we should be considering?
Mr. Tenorio. Thank you, Madame Chairwoman. I certainly
welcome that question. And I know that you asked for three, but
if I may be permitted to add on, to about five priorities.
Mrs. Christensen. Sure.
Mr. Tenorio. Just so that the Committee can have some
options.
Mrs. Christensen. Yes.
Mr. Tenorio. I would say first of all that we can be helped
by this committee by revisiting the authorization of the
covenant section 702, and that is the financial provision of
the covenant. I am sure they are familiar with the history of
the covenant itself, and how the funds that was intended
originally for capital improvement for government operations
and for economic development were reoriented toward just the
capital improvement program.
What I am suggesting is for the Committee to revisit that
provision, and see whether or not it will be possible to
increase the authorization so that the funds that will be made
available under that provision of the covenant could possibly
be redirected for operations, at least for some timeframe, to
help out the immediate need of the government's limited
resources.
Second, I would also recommend that the Committee revisit
the covenant, I mean the compact funds that this committee, the
Members were successful in providing for a larger amount of
funds through the reauthorization of the compacts of
Micronesia.
We are grateful that the compact funds have been increased
from averaging about $800,000 a year since about 10 years ago,
1996 or 1997, to now, the new level of $5.2 million a year,
with, of course, a corresponding increase for Guam and Samoa
and Hawaii.
I feel that there is an institutionalized mechanism already
established where it is possible to increase this compact
impact. And the reason that I say this, Madame Chairwoman, is
because of the fact that we are, even though the amount that we
receive is substantial and has increased substantially over the
last 10 years, nevertheless, CNMI, just like Guam, continues to
spend more than what has been provided under the compact impact
provision.
We are averaging somewhere in the neighborhood of about $9
million a year of public expenditure to take care of the freely
associated states' guests that are in our islands. And again,
since these funds are being appropriated for operations of
government, it would have a direct impact on the current
financial shortage that we are experiencing.
Third, I would like to request the Committee to help us
accelerate the cover-over of tax revenue that is identified
under the covenant section 703[b], mandating that the U.S.
Treasury reimburse the CNMI Government for all taxes that has
been collected over the years, inclusive of the estate tax that
was, I assume was covered under the 703[b] provision of tax
rebating.
We have been successful, and our government has been
working closely with Treasury to continue transfer of funds.
But there are still substantial amount of funds that have not
been covered over yet. So if the Committee can revisit this
provision and help us, it would really help our island
governments immediately.
I also want to recommend that, through the Federal funds
grants under the Work Force Investment Act, that funds be
increased for the CNMI, so that that agency that we have, the
Work Force Investment Agency, can use these funds to hire those
that have lost their jobs because of austerity and other
revenue shortfall, but at the same time also the funds could be
used to train our local people toward some profession where
they can have, eventually in the future, a more permanent job.
The program is working very well in the Commonwealth. I met
with a number of the previous and current administrators about
the program. But they need more assistance in order to hire
more people, and hopefully through that program the
implementation of the Federal minimum wage could then be used
and experimented on for that agency.
Last, I want to request the Committee to help us pass the
amendment to Headnote 3(a). As you know, I acknowledge that you
folks, you people have helped us in the past, and we continue
to ask for your assistance in having Congress pass the
amendment to Headnote 3(a) Act, so that the CNMI, the garment
factories can then depend on this assistance to stay in
business, and to be more competitive against products that are
being imported to the U.S. from other countries.
And again, I want to emphasize that the trade agreements
that have been established between the United States and some
of these foreign countries actually are much more favorable and
advantageous agreements than what the Commonwealth has been
subject to under the current situation.
So in order for some of the factories that are there to
continue to remain at least for several years during the time
that we can try to recover our economy, it would be of great
help if the amendment is passed, so that, you know, these
factories can take advantage of the new competitive situation
that they will be in with the Headnote 3(a) amendment.
Short of that amendment, I fear that, you know, most of the
factories, if not all of them, would close down as quickly as
possible. And you can see it happening every day.
Thank you, Madame Chairwoman.
Mrs. Christensen. Thank you. I now recognize Mr. Fortuno
for such questions as he might have for five minutes.
Mr. Fortuno. Thank you again. I echo our Chairwoman's
concerns, and actually our heart goes out to all the residents,
fellow residents of CNMI.
I know in the past there have been different discussions,
and certainly the fact that the garment and the tourism
industries actually pretty much collapsed for different reasons
in the last decade or so, have, to a great degree, created this
situation.
There have been discussions regarding minimum wage,
immigration policies that have been discussed in the past. You
touched upon them in your presentation.
Let me start with immigration. And the question will be,
how would the Federalization of immigration policies in the
CNMI address these concerns and assist in this situation?
Mr. Tenorio. Well, for one thing, Congressman Fortuno, for
one thing, if there is normalization of the immigration policy
for the Commonwealth, it will provide for a very stable policy,
for one. People, investors that are coming in would then have
something to rely on--on a permanent basis.
Right now, with the different strategies and different ways
that the immigration provisions are being handled, it does not
provide for a stability in terms of the investors that are
coming in.
And the same thing goes with minimum wage. Many businesses
are closing down because they are worried that they cannot have
any reliance on whether or not the minimum wage would increase
or decrease, or stay as it is. And especially those that fear
that, you know, increasing the minimum wage would impact their
business readily. They would rather close their business and
uproot and go someplace else, rather than stay on and continue
to lose their resources.
So having a permanent policy established, such as
immigration and minimum wage, would provide the kind of
security that these businesses would need in order to feel
comfortable, and to invest on our islands on a long-term basis.
Mr. Fortuno. In addition to garment and tourism industries,
is there a way, is it realistic to believe that there could be
a way to diversify the economy and move into other areas, as
well? And what would it take to do that?
Mr. Tenorio. First of all, let me say that, you know,
because of our limited resources, and we have gone through this
since the establishment of the new government, we have tried,
the government has tried to explore all possibilities of
diversifying the economy. So that, you know, we wouldn't feel
that if one sector of the economy goes down, that we will all
be in trouble, just like what is happening right now.
Unfortunately, there are few investors that would want to
come to the CNMI for other than tourism and garment, apparel
manufacturing. There are some that come there to explore
possibilities of a fishing industry, for example. We do have a
very large area of ocean, 240,000 square miles of it, that
continues to be idle, unexploited, and it is available for
people to come in. But for some reason, we just don't get the
kind of interest that other places have gotten. So I look at
the ocean resources as a major potential for purposes of
diversification of the economy.
I don't see resources in the Commonwealth, natural mineral
resources that we have, that we can exploit. Most of what we
are doing there are on subsistence type of, you know, local
economic initiative. For example, subsistence fishing,
subsistence farming.
But we don't just sit back and not look at other options.
But our options are quite limited, because of land size, and
because of the absence of natural resources that other larger
countries and states, for example, have. You know, ore deposits
and mineral resources that are abundant in other places.
And we do have a lot of deposits of coral limestone. And
you know, it is a useful product, because we use it for
construction, but we can't export it. There is a current
interest to exploit the value of pozzolan, which is a volcanic
product from volcanic eruptions, and it continues to be
extruded out of the volcanic vents. But it is a long-term type
of economic diversification, because it takes a lot of
investment to do it. And not too many interests really is
there. There are some that want to try to mine pozzolan for,
you know, for profits, but it is not much.
We do have, I believe, fairly rich soil properties in the
islands. And to raise some crops that possibly could be
exported to Guam, the nearer islands of Guam. We also have the
soil is very conducive to production of or planting of
coconuts, which at one time was one of the major industries
that actually we had in the CNMI. The northern islands,
volcanic islands, was, you know, covered with coconuts at one
time. And I think that industry can still be revived for
purposes of food items, as well as for energy.
There is ongoing interest in some places to use biodiesel
and using coconut and other farm product oil as an addition to
gasoline. So there is that possibility.
But we continue to look for--and I want to acknowledge also
the very great effort that the Department of Interior, through
Mr. Cohen's office, the Office of Insular Affairs, in
sponsoring business opportunities conferences out in the
islands several years ago. It was in the West Coast, in Los
Angeles, and here also. And then just last, I believe it was
last year, when it was conducted in Honolulu. And there was a
lot of people that showed up there with a lot of interests and
ideas.
And we understand that it takes time for people to make up
their mind as to, you know, investment. But that is another
effort that through that Administration, we are getting some
positive interest.
Mr. Fortuno. Thank you very much.
Mrs. Christensen. And thank you. I now recognize Ms.
Bordallo for five minutes.
Ms. Bordallo. Thank you very much, Madame Chairman, and
thank you for holding this very important hearing.
I would like to welcome Resident Representative Pete A.
Tenorio. And I want to share with not only the people in the
audience today, but with the Committee here, that I share an
excellent working relationship with Representative Tenorio and
the CNMI leaders.
And I want to take this opportunity to again call attention
to the fact that the CNMI is the one member of the American
family without a voice in this House. And I strongly believe
that a Member of Congress to represent the CNMI would help this
situation in its review of the many interests, of interests and
concern with respect to the application of Federal law in the
CNMI. It is simply the right thing to do.
I look forward this morning to the testimony and am
interested in learning of the efforts of the Office of Insular
Affairs in helping the CNMI Government improve its financial
standing, and in fostering greater economic diversification and
growth. And I am also interested in learning of the GAO's
assessment of the work underway within the Federal and the CNMI
Governments to make needed improvements in the areas of labor,
immigration, economic and financial accountability policy.
And finally, I am interested in learning from the witnesses
on specific ways the Congress, the Administration, and the CNMI
Government can work together to make improvements within the
spirit of the covenant relationship.
I do have one question for you, Representative Tenorio.
Could you comment for us on the current position or the views
of the CNMI's leaders on the question of the application of
Federal minimum wage in the CNMI? Given the legislation pending
in Congress, what are the views of your government?
Mr. Tenorio. Thank you, Congresswoman Bordallo, and good
morning again to you.
I appreciate that question very much, because that is one
of the issues that many of our leaders have very different
positions on.
But there comes a time when--and I keep informing them that
if you don't have a unified position to present to Congress,
then you might as well not come to Congress and present
something, because you won't be listened to. It is embarrassing
for the government to be coming up with so many different
ideas, when Congress wants just one. And that has been my
advice to our leaders back home.
Finally, after the passage of H.R. 2 in the House, there
was a very concerted effort to come up with something so that
we can present to Congress. I thought it was too late, but
fortunately the bill was still in Congress, and it gives us an
opportunity to reaffirm a united position.
So we came up with a position that because the Northern
Marianas is a relatively developing territory, and as we
understand all the territories have gone through the process of
using the Fair Labor Standard Act industry wage base system, we
agreed that we would ask Congress to help us to be under that
system for a while, so that, you know, we can then learn how
best we can manage our local wage system.
So that is the position that the Administration, together
with the elected officials, have, is to be subject under the
Federal Fair Labor Standards Act provisions, but at the same
time be provided the opportunity to use the industry wage
system as a base. This way, decisions having to do with the
increase of minimum wage on the islands would be based on the
information and knowledge and recommendations of those that are
mostly affected, and that is the local people.
So we appreciate any more initiative that Congress can do
to get us into that system.
Ms. Bordallo. Thank you. Have you given that position to
the U.S. Congress? Have you officially?
Mr. Tenorio. Yes, Congresswoman, we did. We have
communicated with the Senate committee. Members of the Senate,
through Chairman Bingaman, have been approached by many of our
leaders and dismiss people to help us get that system through,
yes.
Ms. Bordallo. Very good. Very good. Madame Chairman, I know
my time is up, but I have one quick question.
Inasmuch as this economic situation exists today, how is
tourism? Is it up or down?
Mr. Tenorio. Well, the latest information on this is
probably not a fair comparison, but the month of April is going
to experience something like a 40 percent occupancy in the
hotel. And you can translate that into, you know, numbers
coming in, tours coming in from Japan basically has been
drastically reduced because of the departure of Japan Airlines
completely out of the Commonwealth after more than 20 years of
operation.
And you know, it was a business decision made by their
company, and there is nothing much that the CNMI can do about
it, although we appealed many times to try and bring them back.
The overall situation of the garment industry is very
disturbing. It continues to decline. And while we try to open
up new markets to supplement the losses that we are
experiencing through Japan through just the reduction of the
flights, as well as reduction of tourist numbers based on
economy, we will continue to see this downward trend for a
while.
This is what the Marianas Visitors Authority have been
projecting. And it doesn't look like there is any light----
Ms. Bordallo. At the end of the tunnel?
Mr. Tenorio.--at the end of the tunnel for the time being.
Ms. Bordallo. Thank you. Thank you very much, Madame
Chairman.
Mrs. Christensen. Mr. Tenorio, we might have another round
if you have another question. So I am going to start mine.
Mr. Tenorio, do you have any estimate of how much the
cover-over in taxes would be? Is there any kind of----
Mr. Tenorio. Well, we have some rough estimates, Madame
Chairwoman Christensen. As of a year ago, for example, where we
got figures from our former Governor, they estimated through
their own assessment somewhere in the neighborhood of about $50
to $60 million of total tax collected by IRS. That is all the
CNMI. A lot of it, a substantial amount of it, has to do with
the estate tax.
But you know, that is the estimate that we got. I would be
happy to provide you with a more recent estimate, if you give
us time to contact the office back home.
Mrs. Christensen. Well, it was important to at least get a
ballpark figure.
As you were talking about the different possibilities for
diversifying the economy, is there any kind of thinking or
planning in CNMI, given the military buildup that is starting
on Guam, as to how you see that CNMI could perhaps take
advantage of that situation to improve your economy?
Mr. Tenorio. Yes. Thank you for that question, and I am
glad Congresswoman Bordallo is here, because I intend to come
and visit you, Congresswoman, to kind of brainstorm on this
subject.
I do have some ideas. They may sound wild to you folks
right now, but let me just share them with you.
Many years ago, I guess it was in the fifties, when Saipan
was built up by an agency of the Federal government. The CIA
was at one time present in Saipan to train Taiwan Chinese to
invade China. This was a big operation. I was very young at
that time, but I was of the age of understanding, so I was able
to accumulate quite a bit of memory about that presence.
Capitol Hill, for your information, where the government
center is located, and where there are a lot of homes over
there, if you look closely at those homes, they were actually
constructed out of prefabricated concrete slabs that were
manufactured in Guam and shipped over to Saipan, because there
was no construction company in Saipan.
So there was this very intensive construction in Guam. Guam
was greatly helped by that construction, because that agency
made use of the slabs and other kind of forms that were
manufactured to construct not only the headquarters, where the
Governor's office is located, but also the homes of the
staffers and the trainers.
And I feel that, you know, if the military would look into
this thing, like using now Saipan as a manufacturing point, as
a prefabrication point for housing construction and other kind
of structures, where Guam at one time did, that would invite
quite a bit of activities. It would, you know, regenerate
interest in construction and employment. And we do have the
manpower there, and perhaps it is very more accessible.
Under the current immigration authority that the Northern
Marianas has, it can bring in steel workers in accordance with
the military planning specifications of the kind of workers and
skills that is needed. Have them temporarily located on Saipan
or wherever, or maybe even Rota. And then have them do the
construction, and then ship over this prefabbed constructed
parts of housing and other facilities to Guam.
Mrs. Christensen. May I just interrupt you? I think that is
a great idea, and I just want to try to get in some other
questions.
Mr. Tenorio. OK.
Mrs. Christensen. Do you want to wrap that answer up?
Mr. Tenorio. Yes, I will wrap it up. And also, I think
CNMI, everybody says it is a great, nice, beautiful island,
group of islands. And again, if the military could consider the
island as R&R for the families and even the soldiers that will
be located in Guam, Guam is getting overcrowded, perhaps
Congresswoman Bordallo, just, you know, Rota is very close to
Guam. And that would be one area where perhaps a nice R&R could
be developed for, you know, for the families.
Mrs. Christensen. OK. Let me see, because we do have
another panel and our time is somewhat limited. Because I
wanted to ask this very important question.
Clearly, CNMI's current situation is a very serious one,
and you know, we look forward to working with you as we move
forward.
Given the seriousness of declining government revenue,
though, I want to know whether or not you feel your presence--
we see what happened with the schools, what is proposed to
happen to the schools. But given the declining government
revenue, I want to know whether you feel your presence and the
representation that you provide as CNMI's elected official here
in Washington, D.C., is also threatened by the government's
declining revenue.
Mr. Tenorio. Well, I hate to speculate, but you know,
looking at things the way it is now, I even have a much more
pessimistic projection of the revenue, simply because there are
other businesses that are not counted in the flow of revenue
for this year that will be closing down. Many garment
industries will close down, and that translates into loss of
revenue.
My office here, yes, would be threatened if the government
goes only with its plan to reduce additional 40 percent of the
current available budget that the agencies of government are
now operating under. It would mean a reduction in my staff, and
that means a reduction in the people, the provision of people
that I utilize to convey the problems and to do things for, you
know, on behalf of the Congress requests. So there will be that
problem.
Also, imagine then our operations here in terms of the
properties we own. We own a house outright fee simple that we
use as an office space, essentially just for office space and
receptions. And we have obligations toward that house in terms
of insurance and other kind of upkeep and maintenance.
I don't think it will come to that, but the prospect for,
you know, the overall government not providing vital services
to the community is one that really disturbs me. And I think
that it would happen sooner than later.
Mrs. Christensen. Thank you. It disturbs all of us, as I
think everyone has said.
Mr. Fortuno, do you have further questions?
Mr. Fortuno. Yes. Yes, I do. First of all, I want to
apologize, Mr. Tenorio, for having to walk back and forth.
You mentioned in your opening statement the tragedy that
the country has gone through at Virginia Tech. I lost one of my
constituents, and I was talking to the widow, so I apologize,
for she needed to talk with me, and I hope you understand.
Mr. Tenorio. Yes, sir.
Mr. Fortuno. So having said that, I feel it is important
that we continue to bring into the record more information on
the current situation. Could you give us some data, if the
government has data, for example, on employment rates, and
whether it has changed dramatically in the last 10 years? What
is the rate today, and what it was several years back? The rate
of growth of the economy, as well? Do you have any data on
that?
Mr. Tenorio. We can provide you, Congressman, with that
information. Give us some time to look at our information, and
also to convey these requests to our government back home, and
we will give you the information.
Mr. Fortuno. Thank you. I feel it could be useful for the
Committee to understand. Actually, I would say it will be
interesting to see what has happened since the compact was
entered into until today, what has happened with basic economic
statistics and indicators. That will be very useful, if you
may, I feel.
Having said that, I also understand, and this is normal,
when you have these economic situations, then there are other
social and economic conditions that spring up. And actually, as
I understand it, the crime rate has been going up. There may be
a greater drug trafficking problem than there was before, as
well as human trafficking. Could you expand on that, please?
Mr. Tenorio. Yes, Congressman. Yes, definitely. I was there
personally for almost a month and a half just last month, in
February and March. And I personally went around, looked around
and observed and opened my eyes and talked to so many people
about, you know, what the problems they are faced with.
They are faced with the problem of lack of jobs, for
example. Some of them lost their jobs. Some of them continue to
look for jobs, but couldn't find any meaningful jobs.
There is also the problem with the, because of the lack of
government resources, the government employees are being
furloughed every other Friday. Meaning that their income has
been reduced by 10 percent.
We do have many different crimes there that have been
committed that could be directly or indirectly a result of the
current economic problems that we face. And I would not
hesitate to mention that we do have burglaries throughout many
of the homes, including homicide incidents where, you know,
poker parlors are being targeted by criminals for robbing
workers there, and even hurting workers, at times, you know,
fatally, and wounding them.
Mr. Fortuno. In terms of human trafficking, perhaps
regional human trafficking, are you seeing that kind of
activity, as well?
Mr. Tenorio. It comes periodically. I don't know the
frequency to that, but I think the representative from OIA,
probably through Mr. Benedetto, can provide you with that more
detailed information about the frequency of interception, for
example. And you know, from our area into Guam, they would be
in a better position to provide you with that.
But I just want to emphasize, too, and this is not a joke.
But you know that there is a common thing now being spread
around the islands that we do have what we call the brass
thieves, because these people will go out and daring, daringly,
would go out in the open, in the middle of day, and will cut
down live electrical wire that is copper wire, that is
servicing a deep well. They will climb up the transformers, and
from there they will cut off this wire, and then steal the
wires for to sell.
This happens not only in the government facilities, but
even in private homes. People, you know, before they could open
up the house, they hook up the electricity, and they will find
the next morning that they have lost the dropped line.
Telephone lines have been vandalized for brass. You know,
you can see how--I mean, this, to me, is such great desperation
already, too.
Mr. Fortuno. Yes.
Mr. Tenorio. So we do have a lot of these crimes I believe
are probably associated with, you know, this bad economic
situation that we have.
And the social impact of the lack of jobs and revenue, too,
is really growing at a disturbing rate. We have broken
families, families that don't have jobs and divorce cases are
coming up. People are losing or selling their lands, selling
their homes to travel someplace else, because they couldn't
survive over there in the islands. So it is a real mess.
Mr. Fortuno. Unbelievable. Let me tell you, Mr. Tenorio, I
am so sorry to hear this, you know, how things have gone down.
And I believe that data would be very useful for the
understanding of everyone in the Committee.
So I thank you for being here, and I would thank you for
providing us with the data, you know, unemployment rate, rate
of growth, and so on and so forth. Thank you again.
Mr. Tenorio. Thank you.
Mrs. Christensen. I now recognize Ms. Bordallo for five
minutes.
Ms. Bordallo. Thank you, Madame Chairman. I wish to
continue questioning the Resident Representative to further
what Congressman Fortuno has talked about.
Your testimony outlined some of the austerity measures that
have been put in place, and I think you just answered him as to
what has been happening in the government.
For government employees whose position may be reduced,
what other opportunities are there for employment in the
private sector? And also, I know that the CNMI Government has
hired non-resident guest workers to fill skilled or
professional positions. Are there laws in place which protect
their employment, given that they were hired for a specific
CNMI Government need that couldn't be filled locally?
Mr. Tenorio. I believe there are laws to protect them,
Congresswoman. I do know for a fact that doctors and nurses and
health professionals that are hired from the outside, of
course, are protected on their own contract. And since they are
the most demanded positions for the Commonwealth, they will be
there for as long as they want to. And we really have a problem
trying to keep them on board, because they all want to leave
after a couple of years.
There are also employees in the government sector in the
technical areas, in the Commonwealth Utilities Corporation,
Public Works, engineers and architects that are there. And they
are there as government employees for a certain period of time;
I don't know for how long. But those are the workers, the
professionals that are subject to being replaced by local
people once these local professionals come back for the jobs.
But I can tell you now that not too many of them are coming
back to work in the CNMI.
But as far as any specific law that protects their
presence, I am not really sure, but I could find out for you.
Ms. Bordallo. In addition to that question, what about the
private sector? I mean, someone whose government salary has
been reduced. Could he maybe get a part-time job in the private
sector stepping up----
Mr. Tenorio. I am sure that the private sector is doing its
best. They have had some conference and meeting with the
Northern Marianas College, for example, to try and pin down
just exactly what can be done by the private sector to begin to
mobilize local people into their businesses.
There has been some progress made in that. At the same
time, there are existing local workers that are hired by the
private businesses there, but mostly for higher-supervisory
position than anything else. Those that local people for some
reason do not want to work in that lower kind of unskilled
categories, like hotel rooms, workers and maintenance.
So we do have a problem, too, because of the fact that the
current minimum wage for all industries there, it is not
attractive. In fact, it is discouraging to so many of the local
people that wanted to get a job, but not at the rate that is
being, you know, that they are being paid, or the salary that
is existing right now: $3.05 an hour. That is a discouragement.
And that is why I believe that the CNMI should support an
increase in the minimum wage, something that is gradual. And
especially for those businesses that can afford a little bit
more because of their higher profit margin.
And there are, in fact, some businesses that would do that.
But in general, throughout the private sector, the local folks
are discouraged from seeking private employment because of
that.
I mean, especially when they see that the government has
such high salaries, three or four times what the private sector
pays. So there is that competition there.
Ms. Bordallo. Thank you very much. Madame Chairman, I just
want to go on record as saying, too, that I sympathize with
this situation. There have been a number of CNMI leaders,
businesspeople, government leaders that have come to my office,
so I am quite aware of the situation. And I just want to go on
record with Mr. Fortuno to say that we sympathize with you; we
certainly hope that we can find some kind of a solution to this
problem.
Again, I do have questions, but my questions are for the
Administration. So thank you, thank you very much.
Mrs. Christensen. We have been joined by Mr. Flake. Mr.
Flake, would you like to take five minutes of questions?
Mr. Flake. Thank you. I appreciate it. I apologize for
getting here late. And I know you covered it in your testimony,
but could you elaborate a little--and I apologize if it is
ground that has already been plowed--with regard to visa waiver
then, and how CNMI needs something quite separate from what we
have here? Can you elaborate a little on that? For example, for
you to have an agreement with China or other close markets
there.
Mr. Tenorio. Yes. Thank you, Congressman Flake, and good
morning to you.
Yes, the CNMI is quite unique, as we all know, because it
has its own immigration system. And it has two reasons,
probably the mainstay, the main economic generator for the
islands, we do concentrate in trying to bring as many tourists
to the islands as possible.
It is very difficult for us to try to bring, to entice
people from the mainland, for example, to come because of
distance and expense. But we are located in very, very high-
populated areas in Asia. And Japan, that has been our main
market. But because Japan now has, you know, has reduced its
expresses on the islands, as a matter of fact, the panel has
cut off its operation for the CNMI, we have been looking at
other markets. And these are the markets that are open for us
because of the fact that we administer our own immigration. So
we can issue--we don't require a visa from them. Markets, such
as China, for example, in which our government has entered into
an agreement called approved destination status, where the
Government of China permits its people to visit the islands
under a memorandum of agreement. And that opens up a new
opportunity to resume an industry to really flourish.
Now we are looking into Russia as well. Some of the
outlying provinces in the western and southern part of Russia,
close, you know, north of Japan area. Sakhalin Island and those
places are now being visited by our visitors' authority to open
up a new market, bring in Russian tourists.
And we, as a matter of fact, when I went there last month
there was a first charter flight out of Russia that came to
Saipan bringing tourists with them. That vantage that we have,
as you know, is we do have this ability to use our immigration
authority to make it easier for tourists from these countries
that cannot go into the U.S., we found visitors' visa through
the U.S., you know, applied through the U.S. Embassy or
Consulate. But they can some to the Northern Marianas with
their passport and their return tickets.
And what you would call an approved, what is it? I am
sorry. It is a kind of approval that our government provides to
the airlines to board, authorization to board. And that is the
system that we use. And we use some standard criteria to make
them eligible to come. And that is working out OK, as we see
it.
If the new immigration framework is enacted that denies us
the ability to continue that operation of visa waiver, then our
tourism industry will not flourish as well or as quickly. So
that is one of the areas that I requested the Senate, when I
testified in the Senate, to include in any framework on
immigration that the Congress would enact for the CNMI.
Mr. Flake. Thank you.
Mrs. Christensen. Thank you, Mr. Flake. I want to thank
you, Mr. Tenorio, for your valuable testimony, and thank the
Members for their questions. Members of the Subcommittee will
have some additional questions for you, I am sure, and we will
ask you respond in writing. Some of them have already been
raised.
At this point you are excused.
Mr. Tenorio. Thank you. Thank you, Madame Chairwoman and
Members.
Mrs. Christensen. Thank you again. I would now like to
recognize the second panel: Mr. David B. Cohen, Deputy
Assistant Secretary of Insular Affairs for the U.S. Department
of Interior; and Ms. Jeanette Franzel, Director of Financial
Management and Assurance of the Government Accountability
Office.
And the Chair now recognizes Mr. Cohen to testify for five
minutes.
STATEMENT OF DAVID B. COHEN, DEPUTY ASSISTANT SECRETARY FOR
INSULAR AFFAIRS, U.S. DEPARTMENT OF THE INTERIOR
Mr. Cohen. Thank you, Madame Chairwoman and Members of the
Committee. Thank you for the opportunity to testify on the
CNMI. With me today is the Federal Ombudsman Respondent in
Saipan, Jim Benedetto, to answer any questions you might have
in his area.
The CNMI's greatest challenge today is how to deal with the
deepening economic crisis that has triggered a growing fiscal
crisis. Both of the CNMI's major industries, as the Resident
Representative has eloquently described, garment manufacturing
and tourism, continue to decline rapidly and simultaneously.
This has caused government revenues to drop approximately 25
percent since 2004.
Continued declines of this magnitude would cast doubt on
the local government's ability to remain solvent and to provide
even the most basic critical services.
On labor conditions, we give the CNMI Government a great
deal of credit for the progress that has been made in the last
several years. However, we continue to have a number of
concerns.
For example, many incidents have been reported of young
women recruited for non-existent jobs, and then coerced into
prostitution. A recent verified account of the number of
trafficking victims receiving services in the CNMI puts the
number at over 30, a figure that far exceeds the incidence of
trafficking victims in the United States per capita.
On the other hand, I commend the CNMI Attorney General's
Office for aggressively investigating and winning convictions
in the Red Heart Massage case, where club owners pressured
foreign workers into prostitution.
The labor situation in the CNMI is inexorably linked to the
fiscal and economic situation. The most significant threat to
the human rights of foreign workers in the CNMI today is the
deteriorating economy. We also remain troubled by the serious
structural imbalances in the CNMI economy and in CNMI society,
as discussed in my written statement.
I call your attention to the unique situation of the long-
term foreign workers that have become an integral part of CNMI
society. A number of foreign workers have been working in the
CNMI for five, 10, 15 or more years. Many are raising children
in the CNMI, and their children are U.S. citizens. These
workers were invited to come to the CNMI because they were
needed; they came, and have stayed legally, and they have
contributed much to the economy. They were essential in
building the CNMI economy from the ground up. Long-term foreign
workers are integrated into all levels of the CNMI's work force
and society.
I hope that the Committee and the CNMI Government will keep
the situation of these long-term members of the CNMI community
in mind as they consider reforms to the CNMI's immigration
system.
The Administration is committed to working with Congress
and with the CNMI's representatives to establish a framework
that will allow the people of the CNMI to build a strong,
prosperous, and just society. We are currently working within
the Administration, with Congress, and with the CNMI Government
to develop a concept of flexible Federalization through which
the Federal government would exert control over the CNMI's
immigration system in a manner that would not cause needless
economic or fiscal harm.
We believe that any effort to Federalize the CNMI
immigration system must be flexible, because of the CNMI's
unique history, culture, status, demographic situation,
location, and, perhaps most importantly, fragile economic and
fiscal condition.
Such an effort should be based upon the following
principles. First, national security and homeland security
issues must be properly addressed.
Second, we should minimize damage to the CNMI economy, and
maximize the potential for economic growth.
Third, the new CNMI economy must not be as conducive to
worker exploitation and abuse as was the old CNMI economy.
Fourth, we should carefully analyze the likely impact of
major proposals before we implement them. Labeling our efforts
as reform does not relieve us of the responsibility to
carefully consider the potential consequences of our actions.
If we leap before we look, we could needlessly hurt people that
we are trying to help.
We should, however, be expeditious in our analysis, and not
use the need to study as an excuse to delay. The people of the
CNMI are eager to get on with their future.
Finally, we must ensure that the people of the CNMI
participate fully in decisions that will affect their future. A
better future for the people of the CNMI cannot be imposed
unilaterally from Washington, D.C., ignoring the insights,
wisdom, and aspirations of those to whom this future belongs.
I was in Saipan last month as the President's special
representative for consultations with CNMI Governor Fitial
under Section 902 of the U.S.-CNMI Covenant. I heard the
Governor's concerns about the effect that Federalization might
have under CNMI's precarious economic and fiscal condition. The
Governor and I endorsed the five principles that are outlined
in my testimony today, although we are still in dialogue about
how those principles should be implemented.
While in Saipan I spoke with as many community groups and
ordinary people as I possibly could. There is a great diversity
of opinion in the CNMI, but a shared sense of anxiety about
what the Federal government may or may not do, and a shared
desire for their voices to be heard here in Washington.
The anxiety stems from the fact that Congress is developing
policy that will profoundly affect a small corner of America
that many of your colleagues in Congress know little about.
The Members of this Subcommittee, on the other hand,
possess a great deal of knowledge about the CNMI. I commend you
all for your commitment to learn as much as you can about what
is really happening in the CNMI today. So look beneath the
negative, sensationalistic press reports to find the more
complicated truth, and to listen to the diverse voices of the
people of the CNMI.
One last point. Three years ago I testified on behalf of
the Bush Administration in favor of granting the CNMI a non-
voting delegate to this body. I spoke of the many men and women
from the CNMI who were fighting in Iraq and Afghanistan so that
the people of each of those countries could be represented in
their national legislatures.
Please allow me to pay tribute to the following sons of
Saipan who have been killed in action in Iraq since then.
Army Sergeant Eddie Chen; Army Sergeant Wilgene Lieto; Army
Specialist Derrence Jack; Army Sergeant Jesse Castro; Marine
Lance Corporal Adam Quitugua Emul; and Army Specialist Leeroy
Camacho.
Forgive me for pointing out that these men died so that the
people of Iraq could enjoy rights that are still not enjoyed by
the loved ones that these men have left behind.
Before considering legislation that would drastically
change the lives of the people of the CNMI, we hope that
Congress will consider granting them a seat at the table at
which their fate will be decided.
Thank you.
[The prepared statement of Mr. Cohen follows:]
Statement of David B. Cohen, Deputy Assistant Secretary of the Interior
for Insular Affairs, U.S. Department of the Interior
Madam Chairwoman and members of the Committee, thank you for the
opportunity to testify on the important issues facing the Commonwealth
of the Northern Mariana Islands (CNMI). I come before you today wearing
at least two hats: As Deputy Assistant Secretary of the Interior for
Insular Affairs, I am the Federal official that is responsible for
generally administering, on behalf of the Secretary of the Interior,
the Federal Government's relationship with the CNMI. I also serve as
the President's Special Representative for consultations with the CNMI
on any matter of mutual concern, pursuant to Section 902 of the U.S.-
CNMI Covenant. In fact, I was in Saipan last month for Section 902
consultations with CNMI Governor Fitial and his team.
I testified before the Senate Committee on Energy and Natural
Resources in March 2006 about the very difficult economic and fiscal
challenges that the CNMI was facing as its only two major private
sector industries, garment manufacturing and tourism, were facing
significant declines at the same time. The situation has changed since
then. It has gotten worse.
The most compelling challenge that the CNMI faces today is how to
deal with a deepening economic crisis that has triggered a growing
fiscal crisis. Both of the CNMI's major industries continue to decline
rapidly and simultaneously. Between 2000 and 2006, garment sales
declined 49.5 percent, from $1 billion to $527 million. According to
the CNMI Department of Finance, garment makers contributed, directly
and indirectly, 37.9 percent of general fund revenues in Fiscal Year
2000. In Fiscal Year 2006, that share was down to 25.1 percent, and it
is headed down still further since garment factory closings continue.
In 2000, there were 34 holders of garment making and shipping licenses
in CNMI. The closure of Saipan's largest garment factory in December
2006 caused the loss of approximately 1400 jobs, and brought the number
of garment factories remaining on Saipan down to 19. Two more garment
factories, with a total of approximately 400 employees, closed at the
end of last month. We expect two additional factories, with a total of
over 550 employees, to close in June or July.
The CNMI's other major industry, tourism, is also experiencing
troubling declines. Just as the industry, dependent more heavily on
Japan than it is on any other market, was recovering, Japan Airlines
(JAL) discontinued flights to the CNMI in October 2005. This was a
major setback to the CNMI's tourism industry because JAL carried 40
percent of all Japanese tourists to the CNMI and 29 percent of all
tourists to the CNMI. Although Northwest Airlines initially replaced
some of the Japan Airlines flights cut in 2005, it recently cut several
flights and is planning to downsize the aircraft used for its daily
flight from Narita, Japan, by September this year. Tourist traffic was
down 16 percent during 2006, and tourist levels will not recover if
arrival capacity continues to decline. The tax contribution of tourism
to the CNMI treasury cannot be measured as directly as that of garment
manufacturers. However, it is reasonable to say that tourism is the
only other major source of income and taxes in the CNMI.
The simultaneous decline of the CNMI's only two major industries
has caused government revenues to decline sharply, dropping
approximately 25 percent from $221.2 million in 2004 to a projected
$165.8 million for the current fiscal year. Continued declines of this
magnitude would cast doubt on the CNMI government's ability to remain
solvent and to provide even the most basic critical services to CNMI
residents.
I would like to also address the labor situation in the CNMI. Much
has transpired since Congress began to take a hard look at CNMI labor
conditions in the 1990s. The following are examples of the significant
progress that the CNMI government has achieved in recent years:
The independent Garment Oversight Board has been in place
since 2003 as a result of a class-action lawsuit. The Board monitors
compliance by CNMI garment factories with 59 standards relating to
working and living conditions. The Board, which is made up of three
former judges (including former California Supreme Court Justice Cruz
Reynoso and former Washington Supreme Court Chief Justice Richard Guy),
engaged, through December 2006, the nonprofit organizations Verite and
Global Social Compliance to conduct comprehensive inspections of each
factory twice a year (with additional inspections as necessary). A
factory placed on probation as a result of a failed inspection loses
its eligibility to sell to 26 major retailers.
The Federal Ombudsman's Office reports that the number of
complaints filed annually had been reduced by over 60% since the
inception of the office in 1999: from 1221 complaints per year to 473.
In recent years, the complaints generally have concerned matters less
grievous in nature than those identified in the early years.
In 2003, the CNMI government signed a Memorandum of
Agreement with the Department of the Interior's Office of Insular
Affairs to establish a refugee protection system. Under the guidance of
the Department of Homeland Security's (DHS) U.S. Citizenship and
Immigration Services, the CNMI amended its immigration statute,
promulgated implementing regulations, and established a refugee
protection program with financial assistance from the Office of Insular
Affairs.
Under the Memorandum of Agreement with the Office of
Insular Affairs, the CNMI also agreed to cooperate with the United
States to combat human trafficking. In furtherance of that goal, the
CNMI enacted the Anti-Trafficking Act of 2005. That same year, the
Federal Ombudsman established the Victims of Trafficking Coalition to
identify persons in the community who may come into contact with
trafficking victims, share information, identify resources in the
community available to assist victims, and assess unmet needs.
Additionally, the Catholic non-profit group, Karidat, through its
shelter, the Guma Esperansa, applied for and received a $450,000 grant
from the U.S. Department of Justice to provide services to trafficking
victims. A similar grant was received by the CNMI Department of Public
Safety. Last year, my office provided a $45,000 grant to support the
Guma Esperansa shelter, and we plan to provide more support in the
future. Recently, the U.S. Attorney's Office established the Human
Trafficking Intervention Coalition.
I would like to commend the CNMI Attorney General's
Office for aggressively investigating and winning convictions in the
Red Heart massage case, where club owners pressured foreign employees
into prostitution. I would also like to commend the U.S. Attorney's
Office for its successful prosecution of U.S. v. Zheng, a forced
prostitution case.
In 1999, 23 garment factories entered into a strategic
partnership with the U.S. Department of Labor's Occupational Safety and
Health Administration (OSHA) that requires each participant to maintain
a formal, written safety and health management system for each worksite
and associated staff housing, and to establish a joint employer/
employee safety and health team. OSHA credits this program with
reducing the lost workday injury rate in these factories to well below
the average for the industry nationwide. OSHA reports that over 44 full
time health and safety managers have been hired by the garment
factories pursuant to this partnership.
The U.S. Department of Labor's Wage and Hour Division
(WHD) continues to have a strong enforcement program for all applicable
provisions of the Fair Labor Standards Act. For the past several years,
WHD has conducted annual enforcement strike forces, stepped up
litigation, and worked with the Saipan Garment Manufacturers
Association to provide training on the monitoring of garment shops to
increase compliance in the CNMI. In the last six fiscal years (2001-
2006), WHD concluded 274 investigations of employers in the CNMI. The
agency collected over $14.6 million in back wages for approximately
10,500 employees. In addition to investigations in the garment
manufacturing industry, WHD has had enforcement cases in the
construction, hotel/motel and security guard industries.
The CNMI government has negotiated agreements with the
Chinese Economic Development Association to pre-screen Chinese
nationals coming to work in the CNMI, limit the fees the workers can be
charged by approved recruiters, and intercede on the workers' behalf
when a dispute arises; implemented secondary preference for jobless
alien workers already present in the CNMI; and completed a
comprehensive revision of the alien labor rules and regulations to
guarantee due process rights to alien worker complainants. While the
pre-screening noted above is not intended to, and does not, substitute
for a visa screening process administered as a foreign affairs and
national security function of the United States, it does assist in
regulating the numbers of nonresident workers who come to work in the
CNMI, ensuring that some minimum standards are met with respect to the
qualifications of those workers, and in protecting their legal rights.
We congratulate the CNMI Department of Labor for recently
eliminating a backlog of over 3,000 labor cases that had begun to
accumulate during prior administrations. This accomplishment could not
have occurred without the Governor's strong commitment and a great deal
of hard work by local public servants. We are proud that the staff of
OIA's Office of the Federal Ombudsman was able to provide important
assistance to this effort, including by translating the testimony of
hundreds of workers.
On November 30, 2006, the CNMI held a Workforce
Development Summit cosponsored by the Northern Marianas College Small
Business Development Center and the CNMI Workforce Investment Agency.
The goals of the Summit were twofold: (1) offer an in-depth discussion
of employment issues facing local residents and the public and private
sectors, and (2) gather business and government leaders to discuss the
CNMI employment needs with a goal of developing the local workforce to
fill positions that are currently occupied by foreign employees. The
Summit brought together business and government leaders to discuss the
CNMI's critical employment needs so that government counseling,
training, education, financial assistance, internship and placement
programs could unify their efforts and maximize resources to develop
the necessary resident labor talent. As a result, the CNMI is creating
a demand-driven talent development action plan that will result in a
higher percentage of resident workers employed in the private sector.
The U.S. Department of Labor's Employment and Training Administration
is assisting the CNMI with mapping their public and private resources
and assets to begin development of their talent development action
plan.
We give the CNMI government a great deal of credit for the progress
that has been made in the last several years. A number of others
deserve a great deal of credit as well, including Members of Congress
who have pushed for reforms, the garment workers and their attorneys
who brought the class action suit against the garment industry,
international non-profit organizations such as Verite which conduct
rigorous inspections of the garment factories, and longtime workers
rights advocates such as former California Supreme Court Justice Cruz
Reynoso who have worked to oversee the inspection regime. We recognize,
however, that the situation remains far from perfect, and we continue
to have a number of concerns. For example:
The CNMI Department of Labor still has too few
experienced investigators and hearing officers to deal with the labor
complaints that have been generated.
We believe that enforcement in labor cases is hampered by
an insufficient commitment by the CNMI law enforcement authorities to
prosecuting or sanctioning repeat offenders.
We are concerned about foreign attempts to influence the
adjudication of particular cases in the CNMI's fledgling refugee
protection program.
We continue to be concerned about foreign nationals in
the CNMI engaging in prostitution. Many incidents have been reported of
young women recruited for non-existent jobs, and then coerced into
prostitution. A recent, verified count of the number of trafficking
victims receiving services in the CNMI puts the number at over 30, a
figure that far exceeds the incidence of trafficking victims in the
United States on a per capita basis.
The CNMI's current fiscal crisis casts doubt on its
ability to ensure the timely repatriation of thousands of garment
workers employed by factories who may not have the resources to pay
their wages in full and provide them a plane ticket to their point of
hire. In addition, of the bonding companies who have a secondary
obligation to pay back wages and provide tickets, a majority do not
have sufficient assets to meet their obligations.
The labor situation in the CNMI is inextricably linked to the
fiscal and economic situation. The most significant threat to the human
rights of foreign employees in the CNMI today is the deteriorating
economy. This manifests itself in a number of ways, including by
depriving the government of the resources that it needs to effectively
prevent, investigate and prosecute labor abuse. The closure of large
garment factories places significant demands upon the local government,
and simultaneously causes the government to lose revenues that it
desperately needs to meet those demands and all of its other
obligations. This mutually reinforcing negative cycle illustrates that
while the departure of the garment industry may be in the long-term
best interests of the CNMI, an immediate, abrupt departure is not.
Change is necessary, but we should be wary of exacerbating a situation
that is already fraught with peril.
In addition to these concerns, we remain troubled by the serious
structural imbalances in the CNMI economy and in CNMI society. The CNMI
remains a two-tier economy where the private sector is overly reliant
on foreign employees, and where the indigenous population is overly
reliant on the public sector for employment. Because of the unique
economic structure of the CNMI and the fact that approximately 50% of
the residents are foreign employees, the ability to import labor is a
factor that tends to depress wages in the private sector, which in turn
tends to reinforce the reluctance of U.S. citizens to work outside of
the public sector. There have been attempts to address this unique
structural problem through local legislation, but the problem persists.
Additionally, having a large alien work force with little economic
power and relatively limited legal rights has created a great risk of
exploitation and abuse in the CNMI. As noted above, the CNMI has made
commendable progress over the last several years in curbing labor
abuse. Our experience tells us, however, that excessive reliance within
the CNMI on a foreign, low-wage work force creates a risk of abuse.
That risk could be overcome with a high level of effort, vigilance and
resources, but it would probably be difficult to sustain such efforts
under the CNMI's current fiscal and economic conditions. Perhaps we
would not all have to work so hard to prevent abuse if the structure of
the CNMI's economy did not give rise to such risks. And eliminating the
most overt forms of abuse will not necessarily eliminate subtler forms
of exploitation that arise when foreign employees have little power and
a great deal to lose if they assert even the limited rights they have.
I call to your attention the unique situation of the long-term
foreign employees that have become an integral part of CNMI society. A
number of foreign employees have been working in the CNMI for five,
ten, fifteen or more years. Many are raising children in the CNMI, and
their children are U.S. citizens. These employees were invited to come
to the CNMI because they were needed, they came and have stayed
legally, and they have contributed much to the community. They were
essential in building the CNMI economy from the ground up from what it
was at the inception of the Commonwealth: a rural economy with little
industry, tourism or other commercial activity. Long-term foreign
employees are integrated into all levels of the CNMI's workforce and
society, serving as doctors, nurses, journalists, business managers,
engineers, architects, service industry employees, housekeepers,
farmers, construction workers, and in countless other occupations. I
hope that the Committee and the CNMI Government will keep the situation
of these long-term members of the CNMI community in mind as they
consider reforms to the CNMI's immigration system.
We stress, Madame Chairwoman, that the CNMI's situation in general
is unique, and our discussion of the CNMI should not be extrapolated to
draw observations about other economies, including that of the U.S. as
a whole. The CNMI's proportional reliance on foreign labor is
overwhelming when compared to that of many other economies, including
the U.S. economy as a whole; foreign employees constitute approximately
half of the CNMI's population. The CNMI also has the ability to admit
foreign employees from low-wage economies in the region without being
subject to Federal laws designed to protect opportunities for the U.S.
workforce. The sheer scope and scale of the foreign labor situation in
the CNMI make the CNMI a special case.
The question is not whether the CNMI's current economic structure
is a good one. It is not. The question is how to help the people of the
CNMI build a strong, prosperous and just society without causing
needless pain and suffering to innocent people--including the foreign
employees--in the transition. The Administration is committed to
working with Congress and with the CNMI's representatives to establish
a framework that will allow the people of the CNMI to build such a
society. We are currently working within the Administration, with
Congress and with the CNMI government to develop a concept of flexible
federalization through which the Federal Government would assert
control over the CNMI's immigration system in a manner that would not
cause needless economic or fiscal harm. We believe that any effort to
federalize the CNMI immigration system must be flexible because of the
CNMI's unique history, culture, status, demographic situation,
location, and, perhaps most importantly, fragile economic and fiscal
condition. Since federalization would constitute a paradigm shift from
the current system, we believe that various options for federalization
should be considered carefully in order to avoid unintended
consequences. We believe that such an effort should be based upon the
following principles:
First, we must ensure that national security and homeland security
issues are properly addressed. In a post-9/11 world, this principle
must take priority over all others. Any proposal should be fully vetted
by the experts at the Departments of Homeland Security, State, and
Justice to ensure that it provides adequate protections for the CNMI
and for the rest of the U.S.
The second principle is that, subject to the need to address
compelling national security and homeland security concerns, we should
minimize damage to the CNMI economy and maximize the potential for
future economic growth. We must recognize that the CNMI is in a very
fragile economic and fiscal condition. The Federal Government must make
every effort to avoid imposing measures that could plunge the CNMI even
deeper into crisis. The cash-strapped local government, which is
struggling to absorb sharp decreases in revenues, is already unable to
provide critical services such as water and power in a reliable
fashion. If the current crisis is exacerbated, it could endanger the
health, safety and welfare of innocent people, threaten the public
order, and leave large numbers of foreign workers jobless and stranded.
Once the CNMI gets through the current crisis, it will have to
build a sustainable economic future. This is probably an opportune
moment in the CNMI's history for the people of the CNMI to engage in a
facilitated process to develop a homegrown strategic plan for its
economic future. The process should involve all segments of society,
and the ultimate product should be one that the large majority of the
community is willing to buy in to. If the CNMI were to embark on such a
process, there would not necessarily be a need for Congress to delay
its effort to establish a framework for a new immigration system. We
would suggest that Congress build sufficient flexibility into that
framework, however, so that the CNMI's vision for its future could be
duly considered and, to the extent possible, accommodated when it is
ready.
Regardless of whether such a strategic planning process occurs or
what it produces, we should recognize that the CNMI's unique
circumstances should be taken into account. By controlling its own
immigration system, the CNMI enjoys a competitive access advantage--in
other words, it has the ability to make it easier for certain classes
of visitors to enter the CNMI than to enter the rest of the U.S. This
competitive access advantage enabled the CNMI to reach out to other
tourist markets after it lost a significant share of its Japanese
market. It has also allowed the CNMI to consider legitimate economic
opportunities that might arise from admitting students, retirees,
investors and others who might not have easy access to the rest of the
U.S. If the CNMI were to lose its competitive access advantage with
respect to legitimate foreign visitors, it would significantly restrict
the already limited range of options that the CNMI has to build a
viable economy.
As part of the bargain through which the CNMI currently retains the
flexibility to control its own immigration system, the U.S. seeks to
insulate itself from the impact of CNMI immigration decisions by
maintaining a ``second firewall'' between the CNMI and the rest of the
U.S. Aliens seeking admission to the CNMI must be processed and
inspected through CNMI immigration procedures, which could be thought
of as the ``first firewall.'' Admission to the CNMI confers no right of
admission to the rest of the U.S. Aliens seeking to travel from the
CNMI to the rest of the U.S. must apply separately for admission to the
U.S., and all persons traveling from the CNMI to the rest of the U.S.
are inspected as if they were arriving from a foreign country (the
``second firewall''). While DHS has statutory authority to inspect and
determine the admissibility of aliens proceeding from all insular
territories to the remainder of the United States, including those
territories governed by U.S. immigration law, the ``second firewall''
authority is broader and more significant in the case of a territory
like the CNMI which operates its own immigration system.
Even under an immigration system administered by the Federal
Government, the law could provide greater flexibility to admit foreign
visitors to the CNMI than is currently allowed under the Immigration
and Nationality Act. This greater flexibility could be justified by the
fact that the CNMI's economic viability is arguably dependent upon
having it. As with the current system, the U.S. could seek to insulate
itself from any impact to the rest of the U.S. from granting greater
flexibility to the CNMI by maintaining the ``second firewall'' between
the CNMI and the rest of the U.S. Under such a scenario, aliens
entering the CNMI after qualifying for special visas or visa waivers
would have to qualify separately for admission to the rest of the U.S.,
and all persons traveling from the CNMI to the rest of the U.S. would
continue to be inspected as if they were arriving from a foreign
country.
We raise these ideas not as concrete proposals, but as discussion
items that Congress, the Administration and the CNMI government could
explore together. The underlying point here is that for the CNMI to
build a viable new economy, it will likely need to remain readily
accessible not only to a reasonable number of workers, but, more
importantly, to customers such as tourists and students. Achieving this
objective may require some degree of flexibility and creativity.
The third principle is that we must ensure that the new CNMI
economy is not as conducive to worker exploitation and abuse as was the
old CNMI economy. Since the CNMI has a very limited indigenous labor
pool, it is reasonable for its economy to rely to some degree on
foreign workers. But the mistakes of the past must not be repeated,
with a large class of politically powerless foreign employees
populating the lower tier of a two-tier CNMI economy, regulated by a
government without adequate resources to prevent exploitative
practices.
The fourth principle is that we should carefully analyze the likely
impact of major proposals before we implement them. Just as we would
not perform major surgery on a patient without first performing a
detailed diagnosis and medical analysis, and just as we do not build
even schools or hospitals without conducting an environmental analysis
or impact study, neither should be attempt to perform major surgery on
the CNMI's economy and society without first analyzing the likely
impact. Labeling our efforts as ``reform'' does not relieve us of the
responsibility to carefully consider the potential consequences of our
actions before we take them. This is especially true when we are
dealing with an economy and society that is as fragile and potentially
volatile as that of the CNMI. If we leap before we look, we could
inadvertently and needlessly hurt people that we are trying to help. We
should, however, be expeditious in our analysis, and not use the need
to study as an excuse to delay. The people of the CNMI are eager to get
on with their future.
The fifth and final principle is that we must ensure that the
people of the CNMI participate fully in decisions that will affect
their future. A better future for the people of the CNMI cannot be
imposed unilaterally from Washington, D.C., ignoring the insights,
wisdom and aspirations of those to whom this future belongs.
I was in Saipan last month as the President's Special
Representative for consultations with CNMI Governor Fitial under
Section 902 of the U.S.-CNMI Covenant, and heard the Governor's
concerns about the effect that federalization might have on the CNMI's
precarious economic and fiscal condition. The Governor and I endorsed
the five principles that are outlined in my testimony today, although
we are still in dialogue about how those principles should be
implemented. While in Saipan, I also took the opportunity to speak with
as many community groups and ordinary people as I possibly could. There
is a great diversity of opinion in the CNMI, but a shared sense of
anxiety about what the Federal Government may or may not do and a
shared desire for their voices to be heard here in Washington. The
anxiety stems from the fact that Congress is developing policy that
will profoundly affect a small corner of America that many of your
colleagues in Congress know little about. The members of this
Subcommittee, on the other hand, possess a great deal of knowledge
about the CNMI. I commend you all for your commitment to learn as much
as you can about what's really happening in the CNMI today, to look
beneath the negative, sensationalistic press reports to find the more
complicated truth, and to listen to the diverse voices of the people of
the CNMI.
I commend this Subcommittee for its plan to hold a hearing in the
CNMI, and hope that some of your colleagues less familiar with the CNMI
will be able to attend. Once your colleagues get to know the people of
these islands, it will be difficult for them not to care about the
future facing the CNMI.
I would like to make one more important point about the need for
the CNMI to participate fully in decisions that will determine its
future. Three years ago, I testified on behalf of the Bush
Administration before the full Committee in favor of granting the CNMI
a non-voting delegate to the U.S. House of Representatives. I testified
about the many men and women from the Northern Mariana Islands who were
fighting in Iraq and Afghanistan so that the people of each of those
countries could have a democracy.
Please allow me to pay tribute to the following sons of Saipan who
have been killed in action in Iraq:
Army Sergeant Eddie Chen
Army Sergeant Wilgene Lieto
Army Specialist Derrence Jack
Army Sergeant Jesse Castro
Marine Lance Corporal Adam Quitugua Emul
Army Specialist Leeroy Camacho
Please consider their sacrifices while we embrace the need to
support the CNMI during a difficult time. The CNMI is prepared to be an
active participant in our efforts to assist them in seeking a brighter
future. Before considering legislation that would drastically change
the lives of the people of the CNMI, we hope that Congress will
consider granting them a seat at the table at which their fate will be
decided.
Thank you.
______
Mrs. Christensen. Thank you, Mr. Cohen. The Committee now
recognizes Ms. Franzel to testify for five minutes.
STATEMENT OF JEANETTE FRANZEL, DIRECTOR, FINANCIAL MANAGEMENT
AND ASSURANCE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Ms. Franzel. Thank you. Good morning, Madame Chairwoman and
Members of the Subcommittee.
I am pleased to be here today to discuss our recent work on
issues impacting CNMI. My comments today will specifically
focus on CNMI's economic challenges, its weakened fiscal
condition, and its financial accountability issues.
We have updated information from our December 2006 report
to include information for Fiscal Years 2005 and 2006, and I
will also discuss some current trends being reported by the
CNMI Government.
Overall, as we have heard, CNMI is facing serious economic,
fiscal, and accountability challenges, and the CNMI economy is
going through a drastic transition.
First I will discuss CNMI's economic challenges. As we have
heard, CNMI's economy has been dependent on a narrow economic
base, including garment manufacturing and tourism, and both of
those industries have been in decline. Those economic factors
have had a significant impact on the CNMI Government's fiscal
condition, which has steadily weakened since 2001.
CNMI's fund balance, which is basically the net worth of
the government, went into a deficit or negative balance in
2002, and has steadily declined to a negative balance of $84
million in 2005. In order to finance its activities during that
period where revenues were less than expenditures, CNMI has had
to increase its debt and stop making required payments to its
pension plan. And that is only through 2005. 2006 audited
financial statements are not yet available; however, there are
many indications that there has been a severe fiscal crisis in
2006, which continues today.
In 2006, for instance, the CNMI implemented drastic cost-
cutting and restructuring measures, including the austerity
holidays that we have heard about in this hearing, as well as a
suspension of payments to the pension plan which provides
temporary cash relief. But in the long run, the hole just gets
bigger.
Based on unaudited data recently provided to us by CNMI's
Secretary of Finance, Mr. Inos, it appears that both revenues
and expenditures for Fiscal Year 2006 drastically decreased
from 2005 levels, reflecting the decreased government
activities and the austerity holidays.
For the current fiscal year, even at that reduced level the
government is currently becoming aware of and projecting
additional shortfalls for 2007, and they are looking at some
more across-the-board budget cuts for 2007.
At this point I would like to issue a cautionary note. It
is admirable that the government has been taking such drastic
actions to try to balance its budget, but care is really
needed. This is not a long-term solution. Care is needed to
ensure that these types of emergency austerity measures and
across-the-board cuts do not have long-term negative impacts,
such as a weakened government infrastructure and an overall
negative impact on citizens and the business climate. And so I
do congratulate you for having this hearing today, because
these are very important issues, and we seem to be reaching
that point.
Mr. Tenorio has recently requested some analysis from the
CNMI Government on the effect of the austerity holidays on the
Federal grant programs. For instance, if the Federal grant
programs have been reduced, there may be some unintended
reduction in Federal reimbursements simply because the Federal
programs have also been reduced. And so that analysis is
ongoing. At a time when local revenues are shrinking, the
government really cannot afford to have the Federal
reimbursements shrinking.
Finally, I would like to briefly discuss CNMI's
accountability challenges. The Government of CNMI, even before
this crisis, has had longstanding financial accountability
problems, including the inability to achieve clean audit
opinions on financial statements due to numerous issues with
reporting, financial reporting and compliance.
CNMI has made some progress, but really needs to get to a
point where it can pass an audit where reliable financial
information is readily available, especially for making
decisions in difficult times like this.
According to CNMI's Secretary of Finance, the Fiscal Year
2006 audit is proceeding well, and is anticipated to be
submitted on time this year, by June 30 of 2007, which would
represent a significant improvement over past history. And I
will mention that for Fiscal Year 2005, they had made
significant progress in that area, as well. So I am hoping that
on the financial side, soon reliable, timely figures will be
readily available. But we will have to wait and see when that
comes in, and whether there is a clean financial audit opinion
on those figures.
Before concluding, I would like to just mention our
recommendations from our December 2006 report. Our
recommendations were addressed to Department of Interior's
Office of Insular Affairs, dealing with the role they play in
helping CNMI and the other insular areas to attract potential
investors and businesses. And those recommendations mainly
focused around measuring the impact and monitoring the impact
of those efforts. OIA did agree with our recommendations, and
in fact has been taking steps already to address those
recommendations.
In summary, strong leadership and commitment will be needed
to address CNMI's serious economic, fiscal, and accountability
challenges, and to achieve long-term stability and prosperity.
The CNMI Government needs to continue to work toward
sustainable solutions, and OIA, in response to our recent
report, has expressed its commitment to working with CNMI
toward that goal.
In addition, I highly encourage the ongoing dialogue
between Congress and CNMI officials to arrive at constructive
and appropriate solutions for CNMI during this current economic
and fiscal transition, and for the long term.
Madame Chairwoman, this concludes my statement. I will be
pleased to respond to any questions you or the Subcommittee
Members have.
[The prepared statement of Ms. Franzel follows:]
Statement of Jeanette M. Franzel, Director, Financial Management and
Assurance, U.S. Government Accountability Office
Madam Chairwoman and Members of the Subcommittee:
I am pleased to be here today to discuss the Commonwealth of the
Northern Mariana Islands' (CNMI) serious challenges in strengthening
its economy, fiscal condition, and financial accountability. CNMI is a
self-governing commonwealth of the United States that administers its
own local government functions under its own constitution. CNMI
consists of 14 islands in the North Pacific with a total land area
about 2.5 times the size of Washington, D.C. In recent years, CNMI has
experienced serious economic and fiscal challenges, and several
indicators point to a fiscal crisis in Fiscal Year 2006.
Today, I will highlight the recent economic trends in the CNMI
economy, its weakening fiscal condition, and its financial
accountability challenges. Our conclusions are based on work performed
for our December 2006 report 1 on U.S. insular areas and our
February 2007 testimony on CNMI before the Senate Committee on Energy
and Natural Resources, 2 which was updated to include
audited financial information through Fiscal Year 2005 and some recent
developments in Fiscal Year 2006 based on information available as of
February 2007. Today, we are also including additional information on
CNMI's Fiscal Year 2006 status recently provided to us by CNMI's
Secretary of Finance. We conducted our work in accordance with
generally accepted government auditing standards.
---------------------------------------------------------------------------
\1\ GAO, U.S. Insular Areas: Economic, Fiscal, and Financial
Accountability Challenges, GAO-07-119 (Washington, D.C.: Dec. 12,
2006).
\2\ GAO, Commonwealth of the Northern Mariana Islands: Serious
Economic, Fiscal, and Accountability Challenges, GAO-07-436T
(Washington, D.C.: Feb. 8, 2007).
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Summary
The government of CNMI faces serious economic, fiscal, and
financial accountability challenges. The government's ability to
strengthen CNMI's economy has been constrained by CNMI's lack of
diversification in industries. CNMI's economy is highly dependent on
two industries: garment manufacturing and tourism. The garment
manufacturing industry is facing the challenge of remaining
internationally competitive against low-wage nations given recent
changes in trade agreements. CNMI's tourism sector experienced a sharp
decline in the late 1990s, and a series of external events, such as
unfavorable economic trends of nearby countries and changes in airline
practices, have further hampered the sector. Both the garment and
tourism industries employ noncitizen workers who are paid wages lower
than the U.S. minimum wage.
The fiscal condition of CNMI's government steadily weakened from
Fiscal Year 2001 through Fiscal Year 2005, the most recent year for
which audited financial statements for CNMI are available. CNMI's fund
balance, which generally reflects the amount of resources available for
current government operations, went into a deficit balance during
Fiscal Year 2002 and continued to decline through the end of Fiscal
Year 2005. CNMI has also shown significant declines and negative
balances in its reported net assets, which is another measure of fiscal
health. In order to finance its government activities in an environment
where expenditures have exceeded revenues, CNMI has increased its debt.
In addition, several indicators point to a severe fiscal crisis during
Fiscal Year 2006. The CNMI government implemented several drastic cost-
cutting and restructuring measures, including ``austerity holidays''
consisting of biweekly furloughs, during which government workers are
not paid and many government operations are closed to reduce personnel
and operating costs during Fiscal Years 2006 and 2007. Based on
unaudited data recently provided to us by CNMI's Secretary of Finance,
it appears that both revenues and expenditures for Fiscal Year 2006
have significantly decreased from Fiscal Year 2005 levels.
The government of CNMI has long-standing financial accountability
problems, including the inability to achieve unqualified (``clean'')
audit opinions on its financial statements, and numerous, long-standing
material weaknesses in internal control over financial reporting and
compliance with laws and regulations governing federal grant awards.
CNMI received $65.6 million in federal grants in Fiscal Year 2005, and
its audited financial statements are used by federal agencies for
overseeing and monitoring the use of federal grants. With CNMI's
continued inability to achieve clean opinions on its financial
statements and the continuing material internal control weaknesses over
financial reporting, there is limited accountability over its federal
grants. Furthermore, the lack of timely and reliable financial
information hampers CNMI's ability to monitor programs and the
reliability of financial information, such as revenues and
expenditures, in order to make informed decisions.
The U.S. Department of the Interior ``s Office of Insular Affairs
3 (OIA) has ongoing efforts to support economic development
in CNMI and assist CNMI in addressing its accountability issues. A
focused effort is called for where direct and targeted attention is
concentrated on the challenges facing CNMI to help CNMI achieve
economic and fiscal stability. OIA plays a key role in this effort by
helping CNMI and the other insular areas improve their business
climates, identify areas of potential for private sector investment,
and market insular areas to potential investors. In response to our
recent report, OIA expressed its commitments to continuing its
comprehensive approach and to implementing other innovative ideas to
assist CNMI and the other insular areas to continue to improve
financial management and accountability and to support economic
development.
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\3\ OIA's mission is to promote sound financial management
processes, boost economic development, and increase the federal
government's responsiveness to the unique needs of the insular areas.
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Narrow Economic Base and Intrinsic and External Factors Limit Economic
Progress in CNMI
Several factors constrain CNMI's economic potential, including the
lack of diversification, scarce natural resources, small domestic
markets, limited infrastructure, and shortages of skilled labor. The
United States exercises sovereignty over CNMI, and in general, federal
laws apply to CNMI. However, federal minimum wage provisions and
federal immigration laws do not apply. 4 CNMI immigration
policies and the demands for labor by the garment manufacturing
industry and tourism sector have resulted in rapid population growth
since 1980 such that the majority of the population are non-U.S.
citizens. (See attachment I.) According to U.S. Census Bureau data for
2000, the most recent census data available, about 56 percent of the
CNMI population of 69,221 were not U.S. citizens.
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\4\ The U.S. House of Representatives and the Senate recently
passed H.R. 2, ``Fair Minimum Wage Act of 2007'' as well as H.R. 1591,
``U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq
Accountability Appropriations Act, 2007'' either of which, if enacted,
would make the federal minimum wage provisions applicable to the CNMI
with a phased-in implementation.
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According to U.S. Census Bureau data for 2000, the median household
income in CNMI was $22,898, a little more than half of the U.S. median
household income of almost $42,000 for 2000. The percentage of
individuals in poverty in 2000 was 46 percent, nearly four times the
continental U.S. rate of 12 percent in that same year.
CNMI's economy depends on two industries, garment manufacturing and
tourism, for its employment, production, and exports. These two
industries rely heavily on a noncitizen workforce. This workforce
represents more than three quarters of the labor pool that are subject
to the CNMI minimum wage, which is lower than the U.S. minimum wage.
However, recent changes in trade laws have increased foreign
competition for CNMI's garment industry, while other external events
have negatively impacted its tourism sector.
Decline in Garment Industry Tied to Trade Law Changes
Recent developments in international trade laws have reduced CNMI's
trade advantages, and the garment industry has declined in recent
years. Historically, while garment exporters from other countries faced
quotas and duties in shipping to the U.S. market, CNMI's garment
industry benefited from quota-free and duty-free access to U.S. markets
for shipments of certain goods in which 50 percent of the value was
added in CNMI. In recent years, however, U.S. agreements with other
textile-producing countries have liberalized the textile and apparel
trade. For example, in January 2005, in accordance with one of the 1994
World Trade Organization (WTO) Uruguay Round agreements, the United
States eliminated quotas on textile and apparel imports from other
textile-producing countries, leaving CNMI's apparel industry to operate
under stiffer competition, especially from low-wage countries such as
China. 5 According to a DOI official, more than 3,800
garment jobs were lost between April 2004 and the end of July 2006,
with 10 out of 27 garment factories closing. U.S. Department of
Commerce data show that the value of CNMI shipments of garments to the
United States dropped by more than 16 percent between 2004 and 2005,
from about $807 million to $677 million, and down from a peak of $1
billion in 1998-2000. In 2006, reported garment exports to the United
States fell further, by 27 percent compared to 2005, with exports
declining to $495 million. The reported level of shipments to the
United States in 2006 was comparable to levels of sales in 1995-1996,
prior to the significant build-up of the industry. (See attachment II.)
In December 2006, the largest and oldest garment factory closed. Given
that the garment industry is significant to CNMI's economy, these
developments will likely have a negative financial effect on government
revenue. For example, reported fees collected by the government on
garment exports fell 37 percent from $38.6 million in 2000 to $24.4
million in 2005.
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\5\ GAO, U.S.-China Trade: Textile Safeguard Procedures Should Be
Improved, GAO-05-296 (Washington, D.C.: Apr. 4, 2005).
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External Events Affect Tourism
CNMI's tourism sector experienced a sharp decline in the late
1990s, and a series of external events have further hampered the
sector. Tourism became a significant sector of economic activity in
CNMI by the mid-1980s and continued to grow into the 1990s. According
to the Marianas Visitors Authority, the number of visitors reached
about 736,000 visitors in 1996 then sharply declined in 1998 and has
not recovered since then. The Marianas Visitors Authority reported
435,500 visitors in 2006. The reported visitor arrivals in 2006 were 59
percent of the peak level in 1996.
Due to its proximity to Asia, Asian economic trends and other
events have a direct effect on CNMI's economy. For example, the Asian
financial crisis and the cancellation of Korean Air service to CNMI
following an airplane crash on Guam in August 1997 contributed to the
decline. Visitors from Korea, the second largest source of tourists,
decreased by 85 percent from 1996 to 1998. After a modest recovery in
2000, tourism faltered again with the September 11, 2001, terrorist
attacks on the United States. In 2003, according to CNMI officials,
tourism slowed--with a double-digit decline in arrivals for several
months--in reaction to the SARS epidemic and to the war in Iraq.
Tourism in CNMI is also subject to changes in airline practices.
For example, Japan Airlines (JAL) withdrew its direct flights between
Tokyo and Saipan in October 2005, raising concerns because roughly 30
percent of all tourists and 40 percent of Japanese tourists arrive in
CNMI on JAL flights, according to CNMI and DOI officials. The Marianas
Visitors Authority's June 2006 data show that the downward trend in
Japanese arrivals is not being offset by the growth in arrivals from
other markets such as China and South Korea. At the same time, CNMI has
experienced an increase in Chinese tourists in recent years, which
offers the potential to rebuild the industry.
CNMI's Reported Fiscal Condition Continues to Weaken
The fiscal condition of CNMI's government steadily weakened from
Fiscal Year 2001 through Fiscal Year 2005, the most recent year for
which audited financial statements for CNMI are available. In addition,
several indicators point to a severe financial crisis in Fiscal Year
2006. CNMI's reported governmental fund balance declined from a
positive $3.5 million at the beginning of Fiscal Year 2001 to a deficit
of $84.1 million by the end of Fiscal Year 2005, as CNMI's expenditures
for its governmental activities consistently exceeded revenues in each
year since Fiscal Year 2002. (See attachment III.) Most of CNMI's
governmental activities, which include basic services such as public
safety, health care, general administration, streets and parks, and
security and safety, are reported in its governmental activities, or
government funds. The fund balance (or deficit) for these activities
reflects the amount of funds available at the end of the year for
spending. A significant contributing factor to the gap between
expenditures and revenues is that actual expenditures exceeded budgeted
expenditures for each fiscal year during the period 2001 through 2005.
Another measure of fiscal health is the measure of net assets for
governmental activities, which represents total assets minus total
liabilities. The primary difference between the fund balance measure
and net assets is that the net assets include capital assets and long-
term liabilities, whereas the fund balance figure focuses on assets
available for current period expenditures and liabilities that are due
and payable in the current period. CNMI has experienced a negative
trend in its balance of net assets for governmental activities, going
from a reported positive $40.6 million balance at the end of Fiscal
Year 2001 to a negative $38 million balance 6 at the end of
Fiscal Year 2005. (See attachment IV.)
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\6\ The net asset amount at September 30, 2005, when compared to
the fund balance amount as of the same date, includes an additional
positive balance of $46 million resulting from capital and deferred
assets of approximately $180.8 million less long-term liabilities of
$134.8 million.
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In order to finance its government activities in an environment
where expenditures have exceeded revenues, CNMI has increased its debt
and has not made the required contributions to its retirement fund.
CNMI's reported balance of notes and bonds payable increased from $83
million in Fiscal Year 2002 to $113 million in Fiscal Year 2005,
representing an increase of 36 percent. CNMI's balance owed to its
pension fund increased from $72 million in 2002 to $120 million in
2005, representing an increase of 67 percent. CNMI has also been
incurring penalties on the unpaid liabilities to the pension fund. The
total amount of assessed penalties was $24 million as of September 30,
2005.
Although CNMI's audited Fiscal Year 2006 financial statements are
not yet available, indicators point to a severe fiscal crisis during
Fiscal Year 2006. In a May 5, 2006, letter to CNMI legislative leaders,
Governor Benigno R. Fitial stated that ``the Commonwealth is facing an
unsustainable economic emergency...I regret to say that the nature and
extent of these financial problems are such that there is no simple or
painless solution.'' CNMI implemented several significant cost-cutting
and restructuring measures during Fiscal Year 2006. For instance, in
August 2006, CNMI enacted its Public Law No. 15-24 to implement
``austerity holidays'' consisting of biweekly furloughs, during which
government employees are not paid and many government operations are
closed. This measure was taken to help alleviate the financial crisis
by saving millions of dollars in both personnel and operational costs.
The measure declared one unpaid holiday per pay period for the
remainder of Fiscal Years 2006 and 2007, reducing the government's
normal pay period to 72 hours every 2 weeks. In June of 2006, CNMI
enacted Public Law No. 15-15 to authorize the CNMI government to
suspend the government's employer contributions to the retirement fund
for the remainder of Fiscal Years 2006 and 2007. In addition, CNMI has
passed laws to restructure loans among its component units, reform the
rate of compensation for members of boards and commissions, increase
the governor's authority to reprogram funds, and extend the date for
full funding of the retirement fund's defined benefit plan--the
unfunded pension liability was estimated at $552,042,142 as of October
1, 2004. CNMI has also created a defined contribution retirement plan
for government employees hired on or after January 1, 2007. These
measures are immediate and dramatic, and are indicative of severe
financial problems that will likely call for long-term solutions.
Based on unaudited data recently provided to us by CNMI's Secretary
of Finance, it appears that both revenues and expenditures for Fiscal
Year 2006 have significantly decreased from Fiscal Year 2005 levels.
The significant decline in revenues is likely due to declines in the
garment manufacturing and tourism industries. Although these unaudited
data are showing a balanced budget for the year with no significant
changes to the cumulative deficit balance, these data are unaudited and
could change due to adjustments identified in the audit process.
CNMI's Financial Accountability Remains Weak
CNMI has had long-standing financial accountability problems,
including the late issuance of its single audit reports, the inability
to achieve unqualified (``clean'') audit opinions on its financial
statements, and numerous material weaknesses in internal controls over
financial operations and compliance with laws and regulations governing
federal grant awards.
CNMI's Compliance with Single Audit Requirements
As a nonfederal entity expending more than $500,000 a year in
federal awards, CNMI is required to submit a single audit report each
year to comply with the Single Audit Act, as amended. 7
Single audits are audits of the recipient organization--the government
in the case of CNMI--that focus on the recipient's financial
statements, internal controls, and compliance with laws and regulations
governing federal grants. Single audits provide key information about
the federal grantee's financial management and reporting and are an
important control used by federal agencies for overseeing and
monitoring the use of federal grants.
---------------------------------------------------------------------------
\7\ 31 U.S.C. Chp. 75.
---------------------------------------------------------------------------
For fiscal years 1997 through 2005, CNMI did not submit its single
audit reports by the due date, which is generally no later than 9
months after the fiscal year end. CNMI's single audit submissions were
significantly late for fiscal years 1997 through 2004, ranging from 22
months late for Fiscal Year 2004 to 2 months late for Fiscal Year 1998.
CNMI's late submission of single audit reports means that the federal
agencies overseeing federal grants to CNMI did not have current audited
information about CNMI's use of federal grant funds. CNMI made
significant progress in 2005 by submitting its Fiscal Year 2005 single
audit report less than 1 month late. According to CNMI's Secretary of
Finance, the Fiscal Year 2006 single audit is progressing well and it
is anticipated that the single audit report will be submitted to the
Federal Audit Clearinghouse on time, by June 30, 2007.
CNMI Unable to Achieve ``Clean'' Audit Opinions Due to Persistent,
Significant Weaknesses
The CNMI government has been unable to achieve unqualified
(``clean'') audit opinions on its financial statements, receiving
qualified opinions on the financial statements issued for fiscal years
1997 through 2005. Auditors render a qualified opinion when they
identify one or more specific matters that affect the fair presentation
of the financial statements. The effect of the auditors' qualified
opinion can be significant enough to reduce the usefulness and
reliability of CNMI's financial statements.
CNMI has made some progress in addressing the matters that resulted
in the qualified opinions on its financial statements for Fiscal Years
2001 through 2003. However, some of the issues continued to exist in
2004 and 2005. The auditors identified the following issues in Fiscal
Year 2005 that resulted in the most recent qualified audit opinion: (1)
inadequacies in the accounting records regarding taxes receivable,
advances, accounts payable, tax rebates payable, other liabilities and
accruals, and the reserve for continuing appropriations; (2)
inadequacies in accounting records and internal controls regarding the
capital assets of the Northern Marianas College; and (3) the lack of
audited financial statements for the Commonwealth Utilities
Corporation, which represents a significant component unit of CNMI.
Auditors for CNMI rendered qualified opinions on CNMI's compliance
with the requirements for major federal award programs from 1997
through 2005. In Fiscal Year 2005, the auditors cited noncompliance in
the areas of allowable costs, cash management, eligibility, property
management, procurement, and other requirements.
CNMI's Secretary of Finance told us that he expects that the single
audit report for Fiscal Year 2006 will show improvement from the 2005
reporting in the area of qualifications to the audit opinion.
Weaknesses over Financial Reporting and Compliance with Requirements
for Major Federal Programs
CNMI has long-standing and significant internal control weaknesses
over financial reporting and compliance with requirements for federal
grants. Table 1 shows the number of material weaknesses and reportable
conditions for CNMI for Fiscal Years 2001 through 2005. The large
number and the significance of reported internal control weaknesses
raise serious questions about the integrity and reliability of CNMI's
financial statements and its compliance with requirements of major
federal programs. Furthermore, the lack of reliable financial
information hampers CNMI's ability to monitor programs and financial
information such as revenues and expenses and to make timely, informed
decisions.
[GRAPHIC] [TIFF OMITTED] 34824.004
CNMI's 13 internal control reportable conditions for Fiscal
Year 2005, 9 of which were material weaknesses, indicate a lack of
sound internal control over financial reporting needed to provide
adequate assurance that transactions are properly recorded, assets are
properly safeguarded, and controls are adequate to prevent or detect
fraud, waste, abuse, and mismanagement. For example, one of the
material internal control weaknesses that the auditors reported for
CNMI's government for Fiscal Year 2005 was the lack of audited Fiscal
Year 2005 financial statements of the Commonwealth Utilities
Corporation (Corporation), a significant component unit of CNMI.
Because the Corporation's financial statements were unaudited, the
auditors could not determine the propriety of account balances
presented in the financial statements that would affect CNMI's basic
financial statements. CNMI's auditors also reported other significant
material internal control weaknesses that have continued from previous
years, such as improper tracking and lack of support for advances to
vendors, travel advances to employees, liabilities recorded in the
General Fund, and tax rebates payable. Due to the lack of detailed
subsidiary ledgers and other supporting evidence, the auditors could
not determine the propriety of these account balances. According to the
auditors, the effect of these weaknesses is a possible misstatement of
expenditures and related advances and liabilities, which also resulted
in a qualification of the opinion on the Fiscal Year 2005 CNMI
financial statements. Consequently, CNMI's financial statements may not
be reliable.
As shown in table 1, auditors also reported 38 reportable
conditions in CNMI's compliance with requirements for major federal
programs and the internal controls intended to ensure compliance with
these requirements for Fiscal Year 2005, 2 of which were material
weaknesses. One of the material internal control weaknesses affecting
compliance with federal programs related to the failure to record
expenditures for the Medical Assistance Program when they were
incurred. Specifically, the auditors identified expenditures in Fiscal
Year 2005 for billings from service providers for services rendered in
previous years. The effect of this weakness is that expenditures
reported to the grantor agency, the U.S. Department of Health and Human
Services, are based on the paid date and not, as required, the service
date. In addition, actual expenditures incurred during the year are not
properly recorded and, therefore, current year expenditures and
unrecorded liabilities are understated. The other material weakness
affecting compliance related to the lack of adherence to established
policies and procedures for managing and tracking property and
equipment purchased with federal grant funds. As a result, CNMI's
government was not in compliance with federal property standards and
its own property management policies and procedures. The other 36
reportable conditions concerned compliance with requirements regarding
allowable costs; cash management; eligibility; equipment and property
management; matching, level of effort, and earmarking; procurement and
suspensions and debarment; reporting; subrecipient monitoring; and
special tests and provisions that are applicable to CNMI's major
federal programs.
Efforts to Assist CNMI in Its Economic and Accountability Challenges
OIA has ongoing efforts to support economic development in CNMI and
assist CNMI in addressing its accountability issues. OIA has in the
last 3 years sponsored conferences in the United States and business-
opportunity missions in the insular areas to attract American
businesses to the insular areas.
OIA's efforts in helping to create links between the business
communities in the United States and CNMI are key to helping meet some
of the economic challenges. In our December 2006 report, 8
we concluded that the insular areas would benefit from formal periodic
OIA evaluation of its conferences and business-opportunity missions,
including assessments of the cost and benefit of its activities and the
extent to which these efforts are creating partnerships with businesses
in other nations. We recommended that OIA conduct such formal and
periodic evaluations to assess the effect of these activities on
creating private sector jobs and increasing insular area income. OIA
agreed with our recommendation.
---------------------------------------------------------------------------
\8\ GAO-07-119.
---------------------------------------------------------------------------
To promote sound financial management processes in the insular area
government, OIA has increased its focus on bringing the CNMI government
into compliance with the Single Audit Act. For example, OIA created an
incentive for CNMI to comply with the act by stating that an insular
area cannot receive capital funding unless its government is in
compliance with the act or has presented a plan, approved by OIA, that
is designed to bring the government into compliance by a certain date.
In addition, OIA provides general technical assistance funds for
training and other direct assistance, such as grants, to help the
insular area governments comply with the act and to improve their
financial management systems and environments.
DOI's OIA and IG, other federal inspectors general, and local
auditing authorities assist or oversee CNMI's efforts to improve its
financial accountability. OIA monitors the progress of completion and
issuance of the single audit reports as well as providing general
technical assistance funds to provide training for insular area
employees and funds to enhance financial management systems and
processes. DOI's IG has audit oversight responsibilities for federal
funds in the insular area.
OIA staff members make site visits to CNMI as part of OIA's
oversight activities. In our December 2006 report, 9 we
recommended that OIA develop a standardized framework for its site
visits to improve the effectiveness of its monitoring. We also
recommended that OIA develop and implement procedures for formal
evaluation of progress made by the insular areas to resolve
accountability findings and set a time frame for achieving clean audit
opinions. OIA agreed with our recommendations and noted that it had
already made some progress during Fiscal Year 2006.
---------------------------------------------------------------------------
\9\ GA0-07-119.
---------------------------------------------------------------------------
Conclusions
CNMI faces daunting economic, fiscal, and financial accountability
challenges. CNMI's economic and fiscal conditions are affected by its
economy's general dependence on two key industries, which have
experienced significant declines in recent years. In addition, although
progress has been made in improving financial accountability, CNMI
continues to have serious internal control and accountability problems
that increase its risk of fraud, waste, abuse, and mismanagement.
Efforts to meet formidable fiscal challenges in CNMI are
exacerbated by delayed and incomplete financial reporting that does not
provide officials with the timely and complete information they need
for effective decision making. Timely and reliable financial
information is especially important as CNMI continues to take actions
to deal with its fiscal crisis.
OIA has ongoing efforts to assist CNMI in addressing its
accountability issues and to support economic development in CNMI. OIA
officials monitor CNMI's progress in submitting single audit reports,
and OIA provides funding to improve financial management. Yet, progress
has been slow and inconsistent. The benefit to CNMI of past and current
assistance is unclear. Federal agencies and CNMI have sponsored and
participated in conferences, training sessions, and other programs to
improve accountability, but knowing what has and has not been effective
and drawing the right lessons from this experience is hampered by a
lack of formal evaluation and data collection.
Strong leadership is needed for CNMI to weather its current crisis
and establish a sustainable and prosperous path for the future. During
2006, the CNMI government took dramatic steps to reverse prior patterns
of deficit spending. The CNMI government will need to continue to work
toward long-term sustainable solutions. A focused effort is called for
in which direct and targeted attention is concentrated on the
challenges facing CNMI, with feedback mechanisms for continuing
improvement to help CNMI achieve economic, fiscal, and financial
stability. OIA plays a key role in this effort. In its comments on our
December 2006 report, OIA pointed out that it provides ``a crucial
leadership role and can provide important technical assistance'' to
help CNMI and the other insular areas improve their business climates,
identify areas of potential for private sector investment, and market
insular areas to potential investors. It also noted that improving
accountability for federal financial assistance for CNMI and other
insular areas is a major priority. OIA has stated its commitment to
continuing its comprehensive approach and to implementing other
innovative ideas to assist CNMI and the other insular areas in
continuing to improve financial management and accountability.
Leadership on the part of the CNMI government and OIA is critical to
addressing the challenges CNMI faces and to providing long-term
stability and prosperity for this insular area.
Madam Chairwoman and Members of the Subcommittee, this concludes my
statement. I would be pleased to answer any questions that you and
other Members of the Subcommittee may have at this time.
[GRAPHIC] [TIFF OMITTED] 34824.005
[GRAPHIC] [TIFF OMITTED] 34824.006
[GRAPHIC] [TIFF OMITTED] 34824.007
[GRAPHIC] [TIFF OMITTED] 34824.008
Note 1: Financial data reflect CNMI's financial statements for
its governmental activities, which include most of CNMI's basic
services. These financial data do not include CNMI's component units,
which are legally separate but related to CNMI. These financial data
also do not include CNMI's fiduciary funds, because those funds cannot
be used to finance CNMI operations.
Note 2: CNMI's audited financial statements received qualified
opinions from its external auditors and, therefore, these amounts are
subject to the limitations cited by the auditors in their opinions and
to the material internal control weaknesses identified.
aOther financing includes transfers in and out of other
funds.
bGovernmental funds finance most of the basic services
provided by the government.
cThe end-of-year fund balance for the prior fiscal year
may not agree with the beginning-of-year fund balance for the
succeeding fiscal year due to amounts being restated in subsequent
financial statements. We could not readily identify explanations for
these restatements because comparative information was not always
available or disclosures were not made in subsequent financial
statements.
dNet assets are capital assets and other assets, such as
cash and receivables, less liabilities.
eThe amount reported is the restated amount from the
2003 single audit report, corrected because of excluded and misstated
amounts.
fGDP estimates are not available for 2001, 2003, 2004,
and 2005.
Attachment V
GAO Contacts
For further information about this testimony, please contact
Jeanette Franzel, Director, Financial Management and Assurance at (202)
512-9471 or [email protected], or David Gootnick, Director,
International Affairs and Trade at (202) 512-4128 or [email protected].
Contact points for our Offices of Congressional Relations and Public
Affairs may be found on the last page of this testimony. The following
individuals made important contributions to this report: Norma Samuel,
Emil Friberg, Jr., James Wozny, Sandra Silzer, Nicole McGuire, Meg
Mills, and Seyda Wentworth.
Congressional Relations
Gloria Jarmon, Managing Director, [email protected] (202) 512-4400,
U.S. Government Accountability Office, 441 G Street NW, Room 7125,
Washington, D.C. 20548.
Public Affairs
Paul Anderson, Managing Director, [email protected] (202) 512-
4800, U.S. Government Accountability Office, 441 G Street NW, Room
7149, Washington, D.C. 20548.
______
[NOTE: The GAO report ``U.S. Insular Areas: Economic,
Fiscal, and Financial Accountability Challenges,'' GAO-07-119
(Washington, D.C.: Dec. 12, 2006), submitted for the record has
been retained in the Committee's official files.]
Mrs. Christensen. Thank you, Ms. Franzel. I guess I will
begin with you, since you just finished your testimony.
I, too, was impressed with the fact that the CNMI really
took some strong measures to bring their budget into balance,
as painful as it was and it continues to be. But it shows their
commitment to try to do the best they can.
But they have grown, the population has grown to now
70,000, of which 56 percent is the foreign workers. Do you
think that they can get out of this crisis without repatriating
a large number of those workers?
Ms. Franzel. Certainly, if you look at the population
figures--and we do have a chart in the written statement that
shows the drastic growth in those figures--many of those
residents came to work in the apparel industry. And so now that
that industry is shrinking, of course the question becomes what
happens to those folks.
I think what is really called for here is a comprehensive
type of package. And so this would be one very important
factor. But really a comprehensive multi-faceted plan. And I am
assuming that in the framework that Mr. Cohen talked about,
maybe he can elaborate, you know, that many of these factors
would be taken into account.
But you do have the population question. You have got the
economic industry question, how can certain areas be grown. The
government services question, the solvency question. Multi-
faceted issues here that need to be addressed.
Mrs. Christensen. Thank you. Mr. Cohen, let me follow up,
because you did suggest a strategic plan or something--I may
not be using the exact term. And I know that under your
leadership, you had hired Dr. Waliosman, the economist formerly
with the Bank of Hawaii. You have had the Summer Fellows
Program offered to graduate students from schools of business
the opportunity to study and to do some research, and to report
back to us.
With all of these resources, have they been able to report
back to you on some of the better prospects for economic
development in this new environment, or identified the areas
where tourism might focus to bring back that industry into the
CNMI, or any other outcomes from that research?
Mr. Cohen. Madame Chairwoman, we have identified a number
of areas that hopefully show some promise. There are no big
surprises; we didn't come up with any revelatory magic bullets.
But a lot of the areas that people have talked about are areas
that are worth looking at.
Certainly tourism, you know, they have traditionally relied
primarily on tourism from Japan. And there are a lot of
constraints that are beyond their control that have affected
tourism from Japan in a negative way, including just the
reduction in service from Japan for reasons that go beyond the
desirability of the CNMI as a destination. It continues to be a
very desirable destination.
But they have looked at diversified tourism to South Korea.
They are getting charters now from Taiwan. They are getting
charters now from Russia. And as the Resident Representative
pointed out, the tourists from Russia tend to stay longer and
spend more money, according to the visitor authority's
statistics.
And as the Resident Representative pointed out, they are
the only jurisdiction in the United States that has approved
destination status from the Peoples Republic of China. Now,
being able to fully capitalize on that might present a number
of challenges that we can discuss in greater detail. But there
are opportunities, and there is indeed an imperative to
diversify the tourism sector.
People have looked at whether there is a potential for
education as a business to offer, you know, revenues for the
CNMI. And that continues to be a possibility. There currently
isn't the infrastructure in the CNMI in the educational
infrastructure to support that fully, and that really depends
on the CNMI's continuing to have a competitive advantage over
the rest of the U.S. in terms of access. Because if it is just
as hard for a student with an F-1 visa, for example, to get
into the CNMI as it is for such a student to get into anywhere
else in the United States, it would be very difficult for the
CNMI to compete in that industry.
But nonetheless, there is a high demand for certifications,
you know, of various types. Nursing exams have been given in
the CNMI, but now they are being given in Manila, as well, so
the promise--there continues to be promise there, but there are
also challenges.
There are opportunities, I think the Resident
Representative mentioned, in the northern islands. There are
deposits of a very valuable mineral called pozzolan, which some
investors have expressed interest in trying to harvest. There
are some opportunities we have identified in aquaculture, in
specialty agriculture, undersea resources, as the Resident
Representative has mentioned. There are a number of things that
we have identified, but a lot of them will require a good deal
of planning and effort, and also supporting infrastructure, to
properly realize, and a stable legal environment, so that
potential investors know what they are getting into.
Mrs. Christensen. Thank you. Mr. Fortuno, I recognize you
for your questions.
Mr. Fortuno. Thank you again, Madame Chairwoman. And thank
you to the members of the panel for being here this morning
with us.
You probably were here when I was asking Mr. Tenorio for
any economic data that he may have, and actually I pass that
along to both of you, as well. If you think there is any
economic data, starting from the date of the compact until
today, that may be useful for the Committee to understand the
whole situation, we will appreciate getting it from both of
you, as well.
I have a question to begin with for Mr. Cohen. We are
talking about the Federalization of the immigration policies.
We have been discussing here today minimum wage legislation.
I am starting to get a sense that perhaps the pendulum in
terms of this relationship, that moved away from territorial
status to a free association, may be going back. Could you
expand on that?
Mr. Cohen. Sure. Thank you, Mr. Fortuno. I guess
historically, when the CNMI, before it was the CNMI, when the
Northern Mariana Islands was part of the trust territory of the
Pacific Islands, you know, the different island communities in
the trust territory, had different views of how they wanted,
how they envisioned their future.
So three parts of that old trust territory opted for free
association, and now we have the Republic of the Marshall
Islands, the Federated States of Micronesia, and the Republic
of Palau. And the Northern Mariana Islands is the only island
chain in the old trust territory that opted to join the United
States through the covenant as a commonwealth.
So I am not sure if it is accurate to say the pendulum is
swinging, although you could certainly----
Mr. Fortuno. If I may, there is no spillover to the other
territories that compose the whole number of islands of this
economic situation at all? There has been none?
Mr. Cohen. Well, that is a very good question. I mean,
there is an impact, because the economies of the different
islands, especially in Micronesia, are linked. They are
certainly linked when there are negative impacts in, you know,
the Federated States of Micronesia, for example. It results in
migration to places like Guam and the Northern Mariana Islands.
And then also migration from Saipan to Guam and elsewhere
in the United States when, as now, the economy is doing poorly.
But the CNMI situation is fairly unique, because it is part
of the United States of America. Under the covenant it was
given the opportunity to control its own immigration and set
minimum wage. Congress reserved the right to reimpose that at
such time and in such manner as it chose.
I don't agree with the observations of those who said that
this was inevitable, and it was merely postponed because the
trust territory was still in effect. I think a reading of the
history shows that that observation is actually not correct.
But what is correct is that Congress has the authority at
any time it wants to impose immigration control and apply
Federal minimum wage law to the CNMI. And I think the pendulum
is swinging in that direction. And indeed, now that that issue
has been raised, now that we have had both Houses of Congress
pass minimum wage Federalization legislation, and now that
there is active discussion of Federalizing immigration, I would
suggest that it is very important that these issues be handled
with great care and thought, and also expeditiously.
Because, as the Resident Representative pointed out, as
long as we have this cloud of uncertainty hanging over the
CNMI, and potential investors don't know what the rules are
going to be, and hence, they don't know whether they want to
commit resources to the CNMI, it has a chilling effect on the
economy at precisely the wrong time.
When I was in the CNMI last month, I was told that as a
result of our most recent conference in Honolulu, the
Secretary's Conference on Business Opportunities in the
Islands, that there were at least 12 potential investors--this
is according to the knowledge of only one person that was
dealing with these companies--that were interested in investing
in the CNMI, but wanted to know what the rules of the game were
going to be.
So I would urge us all to work together to resolve these
issues as expeditiously and as thoughtfully as we can.
Mr. Fortuno. Thank you. My time is up, so I yield back.
Mrs. Christensen. We should have another round I think,
though. Ms. Bordallo, you are recognized.
Ms. Bordallo. Thank you. Thank you very much, Madame
Chairman. I have one question for Mr. Cohen.
What is the Administration's current position on the
application of the Immigration and Nationality Act to the CNMI?
And can you enlighten us on any evolution in the
Administration's position on the Federalization of immigration
in the CNMI since 2001, when the Senate considered in past
legislation sponsored by Senators Murkowski and Akaka?
Please clarify for us what the Administration's position
was at that time on the legislation, and what it is today on
the same principles and objectives put forward in that
legislation, given the events that have transpired since the
Senate passed that bill.
Mr. Cohen. Thank you, Congresswoman Bordallo. In 2001, the
Administration expressed its strong support for the Murkowski-
Akaka Bill that passed the Senate. That was through the Justice
Department, but it was cleared through the Administration, so
that was an Administration position strongly in support of that
legislation to Federalize immigration in the CNMI, and, as you
have said, apply the Immigration and Nationality Act to the
CNMI.
We were asked last year whether that was still our
position, and our interim response was that a lot has changed
since then. So we would like to consider this carefully in
light of all the developments that have occurred since then,
including the changing state of the economy, including progress
that has been made in terms of protecting the rights of
workers, and challenges that have arisen since then in terms of
protecting the rights of workers, and all of the other factors
that go into this mix.
The current position of the Administration is that we are
willing to work with Congress on this concept called flexible
Federalization. We were given a drafting service by the Senate
Committee on Energy and Natural Resources, and we are working
very closely with our colleagues on the Senate side to draft
legislation.
When we present our product to the Senate, it will not
carry with it at that time the endorsement of the
Administration. But then we will work within the Administration
to formulate a position.
So the Administration will take a position on specific
legislation when that legislation is ready, and we are working
with the Congress to develop that legislation. But we are going
to wait until the legislation is in place.
Ms. Bordallo. Thank you. Thank you, Secretary Cohen. A
report originating within DOJ written after 9/11 spoke of
security and border concerns that stem from the CNMI's local
control of immigration. And also, the Subcommittee staff
recently had briefings in Guam with the Naval and the Air Force
bases, where both commanders confirmed that CNMI's local
control over immigration caused a security concern, especially
considering the plans for increased military presence and
relocation of assets in the region.
Given this track record of concern, would you agree that,
absent a Federal presence at CNMI's ports of entry, the
security risk that has been expressed will continue to be a
concern in the Marianas region?
Mr. Cohen. We would agree that a Federal presence at the
CNMI's ports of entry could be very beneficial in helping to
address these security concerns, and it would give the Federal
government a much greater degree of confidence that these
concerns are being addressed.
Ms. Bordallo. One followup, if I could, Madame Chairman. I
just want you to know that with the enhancement of the
military, the big movement to Guam, the CNMI, especially
Saipan, will be considered as a training area. So I want to
allay the fears of Representative Tenorio. I know he has been
questioning me on that. But that for sure I know, that they are
considering CNMI as a training area.
I have one other question for you, Mr. Cohen. It is on a
different topic. Does the government, the CNMI Government,
enter into an MOU or something like that with the garment
factories as to how they treat their workers upon closing? Such
as severance pay or return airline tickets.
I know that right now you currently have 13 factories still
in existence, and two are supposed to close. Recently one of
the largest factories closed, with 900 factory workers. What
has happened to them? Are they leaving the island? Are they
going elsewhere illegally?
Mr. Cohen. Thank you, Congresswoman. I am going to start to
answer the question, but also, since you have mentioned the
arrangements that the government has had, you know, to address
garment factory closures, I am going to also get the insights
from someone who was directly involved in the discussions that
helped formulate that policy, Mr. Benedetto.
But actually, the number of garment factories is always a
moving target because when larger garment factories close down,
often others spring up that are smaller, perhaps operating much
closer to the margin and much closer to the edge of what we
would like to think of as best practice.
So that is always a moving target. So there may be more
than 13 at this point, but still, employment in the garment
industry is rapidly declining.
The CNMI has devoted a great deal of thought to how it will
deal with major closures. And since Jim Benedetto was very
actively involved in working up an agreement with the
government and other interested parties in how to address this,
if I could call on him to give you some more insights on that.
Mrs. Christensen. No objection.
Mr. Benedetto. Thank you. There is a memorandum of
agreement in place between the Attorney General's Office, the
Department of Labor, the Ombudsman's Office, the Chinese
Economic Development Association and other stakeholders in the
CNMI with regard to garment factory closures.
Upon receiving notice that there is going to be a garment
factory that is going to close its doors, each of the parties
that are involved have respective duties which they are
supposed to discharge within a certain number of days.
The Attorney General's Office checks to see whether there
are wages that might be owed to the workers, or whether there
are taxes that might be owed to the CNMI Government, and takes
steps to prevent the principals in some cases in those garment
factories from leaving the jurisdiction without addressing
those issues.
The Department of Labor has the largest role. And what it
does is it agrees to open up a compliance agency case, which
does a speedy investigation into the causes for the closure,
and then holds a transfer hearing for all the garment workers
that are displaced. So that if the finding is made that the
factory closed due to no fault of the workers, then they are
all granted transfer relief within a certain amount of time.
The Ombudsman's Office provides translator assistance so
that they can conduct their investigations, and tries to
ascertain whether there are going to be any problems with the
travel documents of any of the workers that may choose to
leave.
And the Chinese Economic Development Association will
assist in the speedy reapplication for travel documents that
have expired or are close to expiration.
Ms. Bordallo. Would you say these rules and regs are being
followed?
Mr. Benedetto. In my observation, yes, they are.
Ms. Bordallo. So you don't have many workers roaming around
on the island without any work, is that correct?
Mr. Benedetto. Well, we do have a fair number of workers
that are unemployed. And nobody knows how many of those have
pending labor cases, or how many are simply overstaying.
But the trend in the past year or so anyway has been, with
respect to garment workers, that they are departing in large
numbers once they realize that there are no jobs there for them
to transfer to.
And I don't have any figures available to give you, but I
am told from the Department of Labor that something like 90
percent of those workers that are displaced due to garment
factory closures are choosing to go home, and have departed.
Ms. Bordallo. Thank you. Thank you, Madame Chairman.
Mrs. Christensen. Thank you. Mr. Flake, you are recognized
for five minutes.
Mr. Flake. Thank you. Mr. Cohen, with regard to this
flexible Federalization, do you envision really any changes to
the current immigration policy that CNMI has in terms of
desired destination, with the memorandum of understanding they
have with China or the others? Would those things be possible
under this flexible Federalization? Is there anything that they
are doing now, CNMI, or wish to do that you know of, that would
be prohibited by the kind of flexible Federalization you
envision?
Mr. Cohen. Congressman, we are actively working now to
develop the specific contours of the policy. But we are making
every effort to include in that whatever the CNMI is doing now,
other than things that, you know, I guess people would largely
disapprove of.
But all of the legitimate, you know, tourist markets and
other types of visitor markets that they are currently engaging
in, and others that have been mentioned to show promise, we are
doing our best to see if those can be accommodated. So we are
looking at the approved destination status agreement with
China. We are looking at Russia, South Korea, Taiwan, the other
tourist markets that show promise.
And we are looking at ways to try to provide greater
flexibility, in terms of access to the CNMI, than exists for
the rest of the United States, and justifying that by
maintaining what I call in my written statement the second
firewall between the CNMI and the rest of the United States.
In other words, continuing to treat travelers from the CNMI
as if they are coming from a foreign country. Say, when they go
to Guam or Honolulu. And requiring separate independent travel
authorization to get into the rest of the United States.
We are still discussing these. I had a very good meeting
with a number of officials from various agencies of the
Department of Homeland Security. We are discussing this with
our colleagues in the Senate. But the hope is to find a way to
offer as much flexibility as possible, including accommodating
all of the activities that are currently ongoing and
envisioned.
Mr. Flake. Are there any countries that are excluded
totally under CNMI immigration policy, that are not excluded by
Guam or the mainland?
Mr. Cohen. Yes, there are. In fact, there is a provision in
CNMI immigration law that excludes certain countries, and I
think at least one province in China from supplying visitors to
the CNMI.
Mr. Flake. What are the reasons for that?
Mr. Cohen. I think the reasons are that there are concerns
about these countries, and perhaps a policy decision by the
CNMI that the resources that would be necessary to satisfy all
the concerns about visitors from these places, it is not worth
committing the resources for the benefit that you would receive
by allowing these visitors in.
And at least one or perhaps two--and I will defer to Jim on
this--countries that are on the Guam visa waiver list are
excluded under CNMI law.
Do you have anything to add to that?
Mr. Benedetto. I believe that Malaysia is one.
Mr. Cohen. Malaysia. Indonesia?
Mr. Benedetto. And I think Indonesia is another.
Mr. Cohen. And Fujian Province in China.
Mr. Flake. With regard to, it was mentioned that there was
a point at which it was decided--and I understand on the
minimum wage it has been an issue that has percolated and been
discussed here quite a bit--when and what prompted the decision
to Federalize or have some form of Federalization of
immigration policy? What were the concerns? Were there certain
incidents that prompted this type of analysis or conclusion
that we needed to Federalize it? Can you go into that?
Mr. Cohen. Sure. The concerns were, I guess in this round--
--
Mr. Flake. Or were they just general concerns? You know,
after 9/11 we need to be more careful.
Mr. Cohen. Certainly. Well, there was the risk assessment
that Congresswoman Bordallo mentioned. That risk assessment was
very valuable. It was very rough. I mean, it was more in the
spirit of, well, here are horrible scenarios that could
possibly happen, and it didn't really get to the level of
evaluating the probability that any of those scenarios might
happen. But that would be, you know, a logical next step. So it
was pretty much painting worst-case scenarios, but it was very
valuable, you know, to help us focus on things that could
conceivably happen in the CNMI.
From the Senate side, both the Chairman and Ranking Member
of the Senate Committee on Energy and Natural Resources have
expressed these concerns, and asked us to take a look at it.
And we have made every effort to be responsive to those
requests.
And the declining economy has prompted us all, in the CNMI,
has prompted us all to ask the question, does the CNMI still
have the ability to control its borders, even in the manner
that it had in the past. And what types of pressures are going
to be put on the CNMI in light of the rapid job loss in the
garment industry, and the need to repatriate workers. Is it
still going to be able to handle all of these concerns.
We also have concerns about human trafficking. Because
there is such a high percentage of aliens in the CNMI, there is
a concern that there will be a disproportionate amount of that
type of activity in the CNMI. So all of these things have
contributed to a renewed interest in the immigration system in
the CNMI.
Mr. Flake. Thank you.
Mrs. Christensen. Thank you, Mr. Flake. Mr. Benedetto
maybe, I would like to follow up on the question about China,
Indonesia, the other countries. Because one of the examples
that the CNMI usually uses to show that they are, their
immigration policy is a strong one, is their ability to refuse
immigration from localities such as those in China and other
places.
What can you tell us about the enforcement, about that
policy and how it is being enforced?
Mr. Benedetto. Thank you for the question. The Division of
Immigration has its own regulations. And under Section 804 they
have a list of excluded locations, and these are locations that
they have concern about for two reasons.
Number one is the authenticity of travel documents. If they
don't have confidence in the authenticity of those documents,
then you don't know who you are letting in.
And the second is the return of individuals who have been
identified as over-stayers or people who should not be there.
And if the country of origin does not want to take back its
nationals, then that is also of great concern.
There are about a dozen and a half, I guess, countries on
that list. And one of them is the Fujian Province of China. And
I believe this is a sound policy that the CNMI Government has
adopted.
However, there are some exceptions to it. You can get an
Attorney General waiver or a Governor's exemption. And I have
in the past written a number of letters to the CNMI Government
to complain about the typical scam that we see, where people
pay large amounts of money from Fujian Province to a recruiter,
and then they are given contract documents and brought to the
CNMI for a non-existent job, and then maybe coerced into
prostitution or just left there with nothing to do, and a large
debt at home.
It is a matter of record that some of these human
trafficking victims and these people who have been victimized
by these scams have come in from Fujian Province under
Governor's exemptions. And so there are obviously some things
that need to occur in the followup there.
I have recommended in the letters that I have sent to the
government that they do prompt investigations of these cases;
that they prosecute or take other enforcement action; and that
they undertake a reexamination of their policies and
regulations to try and stop those incidents from occurring.
Mrs. Christensen. Thank you. Mr. Cohen, I am asking this
question because it has been an issue before. So the question
is, do you think the question of whether CNMI should have a
delegate ought to be tied in any way to fixing these problems
that we are discussing this morning?
Mr. Cohen. Thank you, Madame Chairwoman. The answer is no,
I don't. And the reason I say that there should be no
conditionality on granting the CNMI representation in this body
is every single other state and territory has representation in
this body, is that we don't apply those standards to any other
state and territory.
Mrs. Christensen. Right.
Mr. Cohen. We have problems in every single state and every
single territory in this great nation. I remember, you know,
before I moved out here from southern California, we had a
great sweatshop scandal in southern California, where a bunch
of people from Thailand were basically held prisoner in
barracks in essentially an illegal garment factory. And we all,
the authorities took appropriate measures to address that, but
no one questioned whether the people of southern California had
therefore sacrificed their right to representation in Congress,
and were somehow no longer worth of representation in Congress.
In fact, we don't have any sort of fitness test, other than
you not be a convicted felon, that we apply to any other
community for representation in Congress. And you all on this
panel have spoken very eloquently about this subject in the
past.
So one would ask why would we apply some sort of fitness
test to the CNMI? If certain people disagree with electoral
decisions that they have made, or if certain people disagree
with policy decisions that they have made, or even disapprove
of policy decisions that they have made, that is well and good
in the democratic process. We can work those things out.
But for one group of Americans to sit in judgment about the
democratic decisions that have been made by another group of
Americans, and say therefore, you guys do not deserve to be
represented in Congress the way that everybody else in America
is represented, to me is not consistent with the principles
that those soldiers from Saipan, Tinian, and Rota are fighting
and dying for in Iraq and Afghanistan.
Mrs. Christensen. Thank you. My last question is to you,
Ms. Franzel, because I understand that you have done a lot of
work with the D.C. Government, or some work, and so you may be
familiar with their establishment of their Chief Fiscal Officer
and the effects that that office has had on projecting revenue,
keeping within spending limits, accounting for such
expenditures, and so forth.
Given the longstanding audit problems associated with the
CNMI, would such a position be a positive, a step that you
would recommend? Or would a CFO be an essential part of their
recovery strategies?
Ms. Franzel. The establishment of a CFO with certain
responsibilities and reporting requirements was a very
important element of the D.C. recovery.
What you refer to as the D.C. situation in the early
nineties, where the District of Columbia was literally
bankrupt, not paying its bills, and many agencies were in
dysfunction, there was a comprehensive reform package put in
place which involved a combination of oversight, financial
reform, some programmatic reforms where certain agencies were
put into receivership; some assistance also from the Federal
government, and some very stringent reporting and monitoring-
type requirements.
So the CFO was part of all of that. And the establishment
of the CFO with those reporting requirements was a very
important element.
One of the conditions for coming out of the control period
for the District of Columbia did deal with balanced budgets,
clean audit opinions, et cetera. And so the District did
achieve that, as well as many other factors to come out of the
control period. So it was a very important factor, as part of a
comprehensive set of reform and assistance.
Mrs. Christensen. Thank you. Do you have any further
questions?
Mr. Fortuno. Just a couple, perhaps. Ms. Franzel, you had
mentioned unfunded pension liabilities of the CNMI. Could you
expand a little bit about what were you referring to? And could
you compare that situation with CNMI with perhaps a couple of
the other territories, if you may?
Ms. Franzel. The unfunded pension liability situation
refers to accumulated promises that workers have earned under
the current system. So for instance, they are part of the
government retirement system; they have put in certain amounts
of years of service. And under the current system, they have
earned certain benefits. And funding means that the CNMI
Government would be putting away a portion of that for future
use.
So for instance, really saving up for the time when those
workers retire, and then using those funds to pay the retirees,
so that you are really matching the earning of those benefits
with the paying of that expense.
There has been a long-term mismatch, OK, in the CNMI
between the time period when the workers are earning the
benefits, and there is just not enough in the savings account
for future pensions. The numbers are very alarming. At
September 30, 2005, it was reported as a $552 million shortfall
if benefits were to be paid out at the promised amount, based
on what people earned.
Now, it could also be that the benefits need to be looked
at, also. So you have really got both sides of the equation.
Are the benefits being promised too generous? But you have also
got the situation where the CNMI Government hasn't been paying
into that fund. This is a long-term issue that will need to be
dealt with.
Mr. Fortuno. Do you have an idea what--you gave the total
amount--what is the ratio, cover ratio, in terms of those
benefits versus what is available? Is it 50 percent? Is it 40
percent?
Ms. Franzel. I do not know the details of their pension
plan, but that is certainly something that needs to be looked
at in light of this situation.
I will mention that many other local jurisdictions in the
mainland are having problems with their unfunded pensions right
now. There have been new accounting rules put in place
requiring local and state jurisdictions to do these
calculations to figure out to what extent our pension plans are
underfunded, and many local jurisdictions are starting to look
at how generous are those benefits in relation to other
benchmarks.
So yes, it should be looked at for CNMI. And I just want to
mention that other jurisdictions are going through this same
type of analysis.
Mr. Fortuno. OK. Well, thank you very much. I yield back
the balance of my time.
Mrs. Christensen. Thank you. Mr. Bordallo, do you have
further questions?
Ms. Bordallo. Yes, thank you. First I want to clear the
record a bit on the movement of the Marines to Guam. I said
earlier that they are looking at Saipan, I think, and what I
should have said was that they are seriously considering
training in Tinian.
And second, Saipan will see some economic results,
especially through the port. And that is that they are moving
in there for supplies, and there will be embarkation and
disembarkation activities going on. So Saipan will see activity
with this enhancement of the Marines to Guam, and it is Tinian
that is being seriously considered for training. So I just
wanted to correct the record.
I have a question here for Secretary Cohen. Is it possible,
Secretary, to make a distinction between Federal control and a
separate guest worker visa waiver program? Is this something
that we can think about?
Mr. Cohen. Thank you, Congresswoman Bordallo. We can
certainly think about all sorts of ways to offer the CNMI the
flexibility that it needs, first of all to continue to have a
proper labor supply. Because when all is said and done, the
indigenous work force in the CNMI is still very small. Almost
anyone that has looked at this concludes that they are going to
continue to need a significant amount of supplementation to
their work force from outside; that they probably will not be
able to attract from other jurisdictions in the U.S. or the
federated states or the freely associated states.
So we are definitely looking at how to continue to provide
some degree of flexibility in that regard, as well as
flexibility to let visitors in--in ways that visitors cannot
access the rest of the U.S.
Ms. Bordallo. And then I have another question for Ms.
Franzel. Your testimony focused a lot around the inability for
the CNMI to achieve unqualified audits. And sadly, today it was
reported in the Saipan Tribune that due to the expected 15.6
percent budget cut that will be implemented across government
agencies, the cash-strapped public school system may have no
choice but to start the next school year in October instead of
the usual August.
Does this inability on the part of the CNMI Government give
any indication as to the overall management of the government
and its ability to provide essential services to the community?
Ms. Franzel. I will say that financial reporting and
accounting is just a basic management function, and it is
something that CNMI has struggled with for years.
And so you can say, if CNMI is having troubles with this
basic function, perhaps there are problems in other management
functions for similar reasons. For instance, CNMI has had
difficulty attracting people to the islands who have the
financial expertise needed to really help fix the problems. And
so it could be that other areas would be suffering from the
same issues.
And so these have been longstanding problems. I will say,
however, that in times like this, it is extremely important to
have a very good management and finance team on board for
regular reporting, for decisions like these. You know, did they
have timely, accurate financial information and other
information available when making this decision? That is really
the key question. And is the management and finance team
suffering from the inability to attract and keep qualified
people.
Ms. Bordallo. You said in your statement earlier that
things seem to be improving, but you are waiting for the latest
audit, is that correct?
Ms. Franzel. Things are improving in terms of timeliness.
Now, I will tell you that that is for the audit report, and
they do have nine months after the fiscal year to complete the
audit report.
We have been told by the Secretary of Finance that it will
be on time. But those numbers are as of September 30, 2006. So
in terms of management decisions, that is still way too late;
however, in terms of complying with Federal law for grant
recipients, which CNMI is, this might be the first year that
CNMI has complied with that deadline.
Ms. Bordallo. Thank you. Madame Chairman, in closing, this
is probably going to be the last round, I just want to again
say that I will continue to work very closely with the Resident
Commissioner or the Resident Representative from the CNMI, Mr.
Tenorio, until such time that U.S. Congress gives them what
they deserve; and that is a voting representative to be a
Member of the U.S. Congress.
I always keep in mind that the citizens of CNMI are our
brothers and sisters. And so until such time we decide to give
them a voting representative in the U.S. Congress, I will
continue to work with the CNMI Government.
Thank you very much.
Mrs. Christensen. Thank you. I wanted to also thank all of
the witnesses for their testimony and their thoughtful,
insightful answers to our questions.
I think the first step that we need to take in that regard,
Ms. Bordallo, maybe both of us need to reintroduce the bill.
Because, I was inquiring, it has not yet been reintroduced, so
we will move swiftly to do that.
And we have a complex set of issues ahead of us, and the
solutions are going to be just as complex. And so I look
forward also to working with Mr. Tenorio, the Government of the
Northern Mariana Islands, the Department of Interior Office of
Insular Affairs, utilizing the expertise of the Government
Accountability Office, and working with my colleagues to come
up with some solutions to help our brothers and sisters in the
CNMI.
So thank you again for taking the time to be here with us
this morning, and for your testimony.
Let me just also add that the hearing record will be open
for 10 days for responses that we would ask in writing. And if
there is no further business before this Subcommittee, the
Chairman again thanks the Members. And additional questions
will be submitted in writing. We have 10 days for that.
And therefore, if there is no further statement or
business, the Subcommittee stands adjourned.
[Whereupon, at 12:02 p.m., the Subcommittee was adjourned.]