February 5, 2026
The Honorable Sam Graves
Chairman
Committee on Transportation and Infrastructure
Washington, DC 20515
The Honorable Rick Larsen
Ranking Member
Committee on Transportation and Infrastructure
Washington, DC 20515
Dear Chairman Graves, Ranking Member Larsen, and Members of the Committee,
On behalf of National Taxpayers Union, the nation’s oldest taxpayer advocacy organization, I write to express our concern that Federal Emergency Management Agency (FEMA) disaster funds are at risk of being diverted into the coffers of Puerto Rican municipalities instead of being used to rebuild the island’s power grid and other essential infrastructure. As you work in a bipartisan manner on a comprehensive FEMA reform bill, we urge you to add additional safeguards to ensure federal disaster dollars are not subject to unfair taxation in Puerto Rico.
As you may know, the territorial government is taxing federally funded recovery work to bail out its indebted municipalities. This tax discourages future allocations for grid recovery projects, and consequently, the people of the Commonwealth continue living with an unstable electric grid, all while taxpayer dollars are diluted and redirected. Federal contractors who performed emergency grid restoration for the Puerto Rico Electric Power Authority (PREPA) are now being hit with frivolous lawsuits demanding millions in retroactive taxes despite this work being tax-exempt at the time.
Legislation enacted in 2024 (Act 215) gives Puerto Rican municipalities broad authority to levy construction taxes, and some are now using this local law to claim that even federally funded work is subject to local taxation. One prominent example involves Cobra Acquisitions, a subsidiary of Mammoth Energy Services, which restored the island’s electric grid to 98% under a federally funded contract with PREPA. Since then, over a dozen municipalities have attempted to levy over $100 million in combined taxes on Cobra’s work.
This flies in the face of longstanding Puerto Rican law and recent judicial precedent. In Lord Construction Group, Inc. v. Municipio Autónomo de San Juan (2023), the Puerto Rico Court of Appeals held that municipalities cannot impose construction excise taxes on contractors working for tax-exempt public entities. Act 215 was subsequently enacted as a direct attempt to bypass this ruling.
This is why additional taxpayer guardrails are essential. As you continue negotiations on what a reform bill might contain, we urge you to include legislative language that conditions or restricts FEMA funding in jurisdictions that impose construction excise taxes on federally funded projects. By adding this targeted safeguard, Congress will compel Puerto Rico to address its structural fiscal imbalances rather than relying on federal bailouts. This will ensure that taxpayer resources are reserved for critical infrastructure and recovery projects that benefit the people on the island.
As we recently noted in a letter to Homeland Security Secretary Kristi Noem, the application of local taxes on federal infrastructure dollars creates a precedent allowing “states to turn disaster relief dollars into a slush fund with taxpayers footing the bill.” Protecting federal taxpayer dollars from being pilfered by local officials must remain a top priority as Congress supports Puerto Rico’s grid modernization efforts. National Taxpayers Union stands ready to assist the Committee in ensuring disaster funds are used as intended and not diverted from critical recovery work.
Sincerely,
Alexander Ciccone
Policy and Government Affairs Manager
National Taxpayers Union