Nov. 2 (Bloomberg) -- Detroit’s school system, which considered bankruptcy or selling assets to cut costs after seven years of budget deficits, leads U.S. states and municipalities seeking voter approval tomorrow to borrow $7.34 billion, the least in 14 years.

Local governments in 24 states led by Texas have bond referendums, according to data compiled by Ipreo LLC, a New York-based financial software firm. The previous low was $7.27 billion in 1995, when voters approved 84.5 percent. With the worst recession since the Great Depression slashing tax collections, local leaders across the U.S. have dialed back capital borrowing plans from a record $78.6 billion in 2006.

“There’s a resistance by politicians to put on the ballot proposals that might lead to higher taxes,” said Richard Ciccarone, chief research officer for Oak Brook, Illinois-based McDonnell Investment Management, which oversees $13 billion.

Voters have an “expectation that tax rates are going to go up just to fill operating deficits,” he said in an interview. “Then, on top of that, you would put capital projects, and that would make that spike even more significant.”

In tomorrow’s balloting, Texas issuers led by the Arlington Independent School District seek $1.32 billion in bonds, more than any other state, according to the Ipreo data. The district, which includes the new Dallas Cowboys National Football League stadium, wants to borrow $197.4 million to fund new buildings, repairs, technology, transportation and fine-arts projects.

Below Investment Grade

The second-largest ballot issue is the $500.5 million referendum in Detroit, the largest U.S. city with a below- investment-grade credit rating, which plans to build eight schools and upgrade 10 others. If voters agree, the district plans to borrow under two federal stimulus initiatives: Build America Bonds and the Qualified School Construction bond program, according to district documents on the debt proposal.

Taxable Build America Bonds come with a 35 percent interest subsidy from the U.S. Treasury. Qualified school debt compensates investors with federal tax credits and gives localities zero or low interest-rate loans.

Detroit’s population and tax revenue have shrunk with the collapse of the U.S. auto industry. The country’s 15th-largest school system, with about $1.6 billion of debt, had a $276.8 million deficit from fiscal 2009 and prior years, according to budget records.

Bankruptcy an Option

Robert C. Bobb, appointed by Michigan Governor Jennifer Granholm as emergency financial manager for the district, has recommended bankruptcy as one option for addressing the deficit, district spokesman Steven Wasko said in July.

Individual bond questions on other ballots nationwide range from $105,250 for construction of a bikeway-walkway in the town of Mansfield near the University of Connecticut’s main campus, to $704 million to replace the aging Wishard Memorial Hospital in Marion County, Indiana.

The $7.34 billion municipal borrowers seek approval for is 89 percent less than in 2008 and 74 percent below 2007, when they sought $28.7 billion, a record for an off-year election, according to data from Ipreo and the Bond Buyer newspaper. State and local governments typically set smaller bond ballots in odd- numbered years, when fewer political offices are up for grabs.

State and local governments typically trail the general economy recovering from recessions. In 2003, they were still coming out of the 2001 slump when their slate of bond questions dropped to $10.65 billion from $12.91 billion in the previous odd-year election, in 2001.

Similar Drop-off

A similar drop-off followed the 1990-91 recession. Election Day bond measures exceeded $15 billion for the first time in 1988 and didn’t return to that level until 1996, when issuers sought $16.56 billion and got 66 percent approved.

Borrowing plans were more plentiful when “people were feeling wealthier,” as in the dot-com boom of the late 1990s and the roaring housing market this decade, Ciccarone of McDonnnell Investment Management said.

Voters passed an average 75 percent of bond plans submitted on Election Day the past 20 years, Ipreo and Bond Buyer data show. The approval rate ranged from 40.6 percent in 1990 to 91.2 percent in 2004.

Only three state governments are asking voters to approve bonds. New Jersey, the most-densely populated U.S. state, seeks $400 million for open-space preservation; Ohio wants to raise $200 million to send checks to veterans and families of war dead, and Maine is asking voters to allow $71.3 million in transportation and energy borrowing.

Open-Space Bonds

New Jersey’s open-space bond issue may fail because voters are hesitant to allow the state to borrow more money, a Rutgers- Eagleton Poll found last month.

Asking for approval on fewer bond plans doesn’t necessarily mean the amount of new municipal issues will drop. General obligation bonds, the kind most often subject to referendums, made up about 38 percent of the $289 billion in municipals issued during the first nine months of 2009, data compiled by Thomson Reuters show.

The rest are revenue bonds, which typically don’t require voter approval. They are backed by specific cash streams from such things as sales taxes and income on hospital operations.

Benchmark borrowing costs have dropped by about 1 percentage point since last Election Day, as investors poured record amounts into municipal bond mutual funds and the Build America Bonds program sapped tax-exempt supply in 2009.

The Bond Buyer 20 index of 20-year general obligation bonds fell to 4.39 percent on Oct. 29, from 5.35 percent a year earlier. The trade newspaper’s weekly gauge of 30-year revenue bonds declined to 4.95 percent, from 6.09 percent before November 2008’s polling.

Municipalities also may have voter-approved borrowing capacity left over from previous years, including elections not held on the first Tuesday after the first Monday in November.

To contact the reporters on this story: Jeremy R. Cooke in New York at jcooke8@bloomberg.net; Darrell Preston in Dallas at dpreston@bloomberg.net

Last Updated: November 2, 2009 10:01 EST