Nov. 7 (Bloomberg) -- U.S. voters whose own credit has been squeezed by falling home values and record mortgage defaults aren't giving up on debt, granting their states, cities and school districts the power to keep on borrowing.

Voters agreed to 82 percent of municipal-bond measures Nov. 4 for $54.5 billion in new borrowing, the second most after November 2006's $69.6 billion, according to Ipreo, a New York- based financial data provider. Californians passed a $9.95 billion high-speed rail bond even as Governor Arnold Schwarzenegger yesterday said the state must raise taxes and cut spending to close a $11.2 billion deficit.

``It requires looking beyond the budgetary and financial impacts today to what the long-term payout will be,'' said Sean Randolph, president of the Bay Area Council Economic Institute in San Francisco. ``Voters appear ready to make those long-term investments.''

Taxpayers this week affirmed their support for public works and infrastructure debt, matching the 82 percent average from the past 10 general elections amid falling tax revenue and record borrowing costs that have squeezed state and city finances.

Dina Rothschild, 47, who works in San Francisco as a legal secretary and lives in Antioch, California, said she voted for the rail bonds to boost an environmentally friendly travel choice that may reduce reliance on overburdened highways.

``I didn't even consider the budget crisis at all,'' Rothschild said. ``It was on a personal basis and what we need for California to get a lot of these cars off the highway. If the taxpayers are willing to pay these extra taxes, that says something.''

Borrowing Costs

Municipal borrowers seeking to sell the newly authorized tax-free bonds in coming months may face higher interest rates. For the past four months, states and municipalities have had to pay more to borrow for 20 years than the U.S. Treasury does to sell taxable 30-year bonds, according to the Bond Buyer 20.

The weekly yield index of 5.24 percent was 1 percentage point more than the benchmark 30-year Treasury bond, even though the tax exemptions usually make municipal borrowing cheaper. Such a premium for tax-free issues hasn't before prevailed for so long.

Phil Fischer, municipal strategist at Merrill Lynch & Co. in New York, said the heaviest turnout in at least four decades probably meant more participation Nov. 4 by voters who carry a smaller burden of the taxes backing the bonds.

``The constituents in the electorate who generally vote these down got overwhelmed by a large number of people who would benefit from the proceeds,'' Fischer said. Economic concerns were ``offset by a general recognition that the infrastructure needs in this country are extreme.''

`Surprising Approvals'

The approval rate in the face of the credit crisis surprised Richard Larkin, research director at municipal-bond firm Herbert J. Sims & Co. in Iselin, New Jersey.

``If anything, this should've been a year when a lot of these things were turned down,'' Larkin said. ``Maybe they're thinking the state's got to spend more money, we need help.''

Still, in many cases, the bonds authorized by voters won't be sold right away, he said.

``Most bond propositions are things out for the future, for the next three, five, 10 years,'' Larkin said.

California Treasurer Bill Lockyer yesterday said sales of bonds backed by the state's general fund will be on hold until January at the earliest, while Schwarzenegger and lawmakers craft a solution to the budget gap.

Single Rejection

Residents of Alaska, Arkansas, California, Maine, New Mexico, Ohio, Pennsylvania and Rhode Island approved all but one of 15 bond proposals on statewide ballots, opening the door for more than $13 billion in borrowing, according to Ipreo. Californians rejected a $5 billion bond measure to promote development of alternative fuels.

Standard & Poor's said this week's state-level debt authorizations didn't prompt the company's municipal credit analysts to adjust any credit ratings.

``The new debt means additional debt service, but we think that will be small enough that it won't have a material effect on credit quality,'' said Chris Morgan, an analyst at S&P in San Francisco.

Voters in Rhode Island, whose 8.3 percent unemployment rate in September was the nation's highest, gave the go-ahead to sell $87 million of bonds for road projects and almost $3 million for open space and recreational development, even after the state's Fitch Ratings credit grade was lowered last month.

`Long-Term Investment'

``Rhode Islanders understand that this is a long-term investment and will be paid back over the life of the bonds,'' state Treasurer Frank Caprio, a Democrat, said.

In Oklahoma, Tulsa voters approved $450 million of bonds to rebuild 17 bridges and miles of arterial and neighborhood roads.

``We have, like most cities, under-invested in street infrastructure,'' said Mayor Kathy Taylor, a Democrat. ``It'll get rid of a significant amount of the backlog.''

As support for the bullet-train bonds wavered amid chaos on Wall Street, the California High-Speed Rail Authority shifted its focus in radio ads to the promise of economic stimulus, said Quentin Kopp, the former state senator and retired judge who is chairman of the agency.

The bullet train project may create almost 160,000 construction-related jobs, proponents said, in one of the states hardest hit by the collapse of the housing and mortgage markets.

The measure passed with 52 percent of the vote, after only 47 percent of likely voters told the Field Poll in late October they would say yes to California Proposition 1A.

``The jobs message carried a lot of weight with voters,'' said Jim Earp of the California Alliance for Jobs, a lobbyist for the construction industry that helped finance the bond campaign. ``Voters understood that even in these tough economic times there are some investments worth making.''

To contact the reporter on this story: Jeremy R. Cooke in New York at jcooke8@bloomberg.net.

Last Updated: November 7, 2008 09:56 EST