June 16, 2026
The Honorable Markwayne Mullin
Secretary, U.S. Department of Homeland Security
2707 Martin Luther King Jr. Avenue, SE
Washington, DC 20528
Dear Secretary Mullin,
On behalf of National Taxpayers Union, the nation’s oldest taxpayer advocacy organization, I urge you to investigate a troubling scheme involving taxpayer dollars in Puerto Rico. The territory’s municipal governments are imposing active and retroactive taxes on federally funded reconstruction projects. The attempt to use federal resources to balance local budgets represents a blatant abuse of taxpayer dollars and critically undermines the ability to rebuild and harden the island’s infrastructure from the threat of natural disasters.
Faced with dwindling property tax revenue in recent years, cash-strapped municipalities are now treating Federal Emergency Management Agency (FEMA) funds as a bailout mechanism. Under the guise of collecting unpaid construction taxes, local municipalities are filing frivolous lawsuits against federal contractors who rebuilt the island’s infrastructure following the destruction of Hurricanes Irma and Maria. However, this abuse is not limited to completed work. Municipalities are applying these construction taxes to contracts currently underway, meaning FEMA dollars are being siphoned as reconstruction continues.
In one case, more than a dozen municipalities have attempted to levy over $100 million in combined taxes on the work of a single company, despite the fact that these legal maneuvers fly in the face of Puerto Rican law. The Puerto Rico Electric Power Authority (PREPA) has been explicitly exempted from municipal construction taxes since its creation in 1941, and the law specifically extends that exemption to contractors working for the public utility.
Every dollar diverted to pay a municipal tax bill is a dollar not spent on repairing substations, modernizing the grid, or hardening infrastructure against the next storm. Taxing infrastructure projects in this manner will not produce more recovery—it will simply fuel more rent-seeking by local interest groups and their allies in the bureaucracy. Federal dollars should be directed to restoring essential services, not filling municipal coffers.
Fortunately for taxpayers, this abuse has not gone unnoticed. The Financial Oversight and Management Board has repeatedly warned local mayors to stop taxing federal recovery projects, noting that doing so artificially inflates costs and violates the Puerto Rico Oversight, Management, and Economic Stability Act. The Board has rightly recognized that allowing municipalities to tax recovery projects undermines Puerto Rico’s broader economic recovery efforts. Local governments that treat these funds as a revenue source rather than a recovery tool risk slowing the very projects their communities depend on.
Given the size and scope of this taxpayer abuse, several members of Congress have directly addressed this issue. Earlier this year, Representatives Greg Steube (R-FL) and Kevin Hern (R-OK) denounced this tax scheme as a municipal bailout. In a letter to the Office of Management and Budget, Representative Steube correctly assessed that this scheme means “fewer resources for Puerto Rico’s energy recovery – at the expense of the Puerto Rican people – and at a higher cost to the U.S. taxpayer.”
More recently, during a June 3 House Committee on Homeland Security hearing to discuss the Department of Homeland Security’s (DHS) budget, you noted that Puerto Rico is “a haven for waste, fraud, and abuse.” In response, a member of the Committee asked for specific instances of fraud that would substantiate ongoing concerns about the proper stewardship of federal funds. We believe the practice of local mayors treating federal disaster relief dollars as a slush fund perfectly fits the description of a smoking gun.
Scandals involving the widespread misuse of government funds have made headlines around the country in recent months, and taxpayers expect strong leadership from Washington on this front. We urge you to investigate this tax and pause any DHS-related funding to Puerto Rico until a thorough investigation report can determine the extent to which federal tax dollars are being illicitly siphoned to fill municipal coffers.
Sincerely,
Alexander Ciccone
Policy and Government Affairs Manager
National Taxpayers Union
CC: The Honorable Joseph Cuffari, Inspector General, U.S. Department of Homeland Security
United States Senate Committee on Energy and Natural Resources