“With direct subsidy bonds, until the bond matures, you’re exposed to the federal process,” says Martin J. Luby, the author of the study. “So the question is, is the lower borrowing cost worth the risk that it could increase [should the federal government defund the program]?”
Dan White, senior economist at Moody’s Analytics, predicts that the answer is no.
“[The feds] could theoretically design a program that protects states against this,” he says. “But states know this has the potential to be changed at a moment’s notice by policymakers in Washington.”