When Hurricanes Irma and Maria devastated Puerto Rico and other places in the fall of 2017, Americans of all types raced to help.  Utility companies were among the first to provide aid, as restoring the island’s power grid was a monumental task. 

As is customary for natural disasters, the federal government, through the Federal Emergency Management Agency (FEMA), will reimburse utilities for their work to restore service quickly to affected areas—work that does not earn them a profit. 

But local governments in Puerto Rico had a different idea.  They sent bills to the utility companies, claiming they owed taxes and fees associated with the work done to help rebuild.  The bills were in the millions; it was not a parking ticket that the companies received.  According to the New York Times, penalties and interest payments were also due.

Puerto Rico’s financial condition, even before the hurricanes, has been the subject of much discussion, numerous articles, and has attracted the attention of policymakers in Washington, D.C.  Some want a bailout; some believe statehood is the answer; some think the island should take drastic action to balance its books. 

One thing that will not fix Puerto Rico’s ailing fiscal condition nor help it recover from Hurricanes Irma and Maria is its local governments violating every principle of decency and common sense by attempting to force private companies to pay taxes on their charitable activity.  This example will discourage companies from helping the island in the future and the people of Puerto Rico will suffer unnecessarily for the continued corrupt and selfish actions of their local governments. 

Government officials in Puerto Rico insist that since the utilities will be reimbursed anyway, they can simply include the hefty tax bills in the tab they submit to FEMA.  But this line of thinking reveals two massive problems in the way they approach this topic. 

First, power companies fronted this money.  Utilities, as natural monopolies, are strictly regulated—indeed, virtually no industry is more heavily regulated in America.  The rates they set are regulated.  The amount of profit they can earn is regulated.  They do not have gobs of money lying around.  Being required to pay taxes on their charity work, work for which they did not earn a profit, will severely affect their bottom line and cash flow as they await reimbursement from FEMA. 

Second, even if the costs of these unnecessary taxes were reimbursed promptly by FEMA, that would mean that they were ultimately paid by all taxpayers, who would be subsidizing unscrupulous behavior.  Taxpayers fund FEMA to help devastated communities recover as quickly as possible, not to enrich mismanaged Puerto Rican local governments. 

This episode will no doubt be forgotten soon enough by many.  But for companies considering ways to provide help to victims of future natural disasters, it will leave a lasting impact.