The tax code also states that bond underwriters can use only 2 percent of the proceeds of a tax-free bond sale to cover the costs of issuance.

"This will materially increase the cost of issuance for small issuers," warned Leo C. O'Neill, the president of Standard & Poor's ratings group.

"The larger-sized financings attract more competition for the bonds, which means a lower interest rate, and also reduces the overhead costs of issuance," said Brian T. Carty, executive director of the finance agency.

While the bond issue purported to create jobs, a high portion of the proceeds would have been used for the financial costs of issuance, the bureaucratic costs of allocating the funds and for political patronage.