The Financial Oversight and Management Board asked the Federal Emergency Management Agency (FEMA) to state whether it is legal for 22 Puerto Rico towns to charge higher municipal taxes to contractors who receive government funds. The six-page letter, signed by Board Executive Director Robert F. Mujica, acknowledges that municipalities may levy taxes and that the practice exists elsewhere in the United States.
But the Board says it knows of no other jurisdiction that imposes different tax rates on contractors depending on whether their projects have federal funds assigned. The Board said the practice has widened the gap in the special construction tax rates between privately financed projects and those funded by the government, including U.S. government funds.
In some cases the extra tax on government projects is double or more what is charged on private-sector projects. The 22 towns are Adjuntas, Añasco, Cabo Rojo, Camuy, Ciales, Cidra, Guánica, Guaynabo, Lajas, Lares, Maunabo, Orocovis, Peñuelas, Ponce, San Germán, San Sebastián, Toa Alta, Trujillo Alto, Utuado, Vega Baja, Vieques and Yauco. The Board said 20 of them began the practice after Hurricane María in 2017, when Puerto Rico started receiving substantial federal disaster and recovery aid.
It voiced concern about the effects of higher special construction taxes on key reconstruction projects and on the proper administration of federal disaster funds. The letter was addressed to FEMA Administrator Cameron Hamilton, with copies to nearly ten officials, including Governor Jenniffer González, Resident Commissioner Pablo José Hernández and Congressman Paul A. Gosar.