The Federation of Mayors, which groups mayors affiliated with the New Progressive Party (PNP), sent a seven-page letter to Christopher Hartnett, administrator of Region 2 of the Federal Emergency Management Agency (FEMA), defending the legality of municipalities charging excise taxes (arbitrios) on construction projects, including those paid for with federal funds after recent natural disasters. The letter, signed by Federation president Gabriel Hernández, was sent ahead of a meeting the Federation is requesting with FEMA.
The Federation also rebutted recent statements by Robert Mujica, executive director of the Financial Oversight and Management Board (JSF), who asked FEMA to weigh in on town halls setting different rates on federally subsidized projects and called the practice "unprecedented." The letter says: "We reject that characterization, which presents the exercise of a taxing power expressly recognized by law without taking into account the fiscal context imposed on municipalities or distinguishing between a tax aimed exclusively at federal funds and a classification applicable to projects financed with state, federal or municipal resources."
The letter stresses that the Municipal Code lets municipalities charge construction excise taxes, with rates varying by approved ordinances. It cites Article 2.109(c), which covers projects carried out by private individuals or entities for, on behalf of, or under a contract or subcontract with state, municipal or federal agencies. The public nature of a project or the governmental source of its funding does not by itself create an exemption.
Nor should a differentiated rate for federal funds be presumed when the ordinance treats a category of projects financed with state, federal or municipal resources the same way.