City of McAllen Receives ‘AA+’ Rating from Fitch

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Ratings for general obligation bonds; rates outlook stable

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Texas Border Business

The City of McAllen recently went before Fitch Ratings for review on its $5.6 million general obligation (GO) refunding bond, series 2019 and received a rating of ‘AA+,’ rating the outlook as stable.  Fitch also affirmed the City of McAllen’s $101 million in outstanding GOs and Long-Term Issuer Default Rating (IDR) at ‘AA+’. According to Fitch, “the ‘AA+’ GO and IDR reflect the city’s strong operating performance and prudent budget practices that have resulted in ample financial flexibility.”

“The rating reflects the responsible fiscal management of McAllen taxpayer dollars,” said City of McAllen Mayor Jim Darling.  “Additionally, the continued strength of our retail economy here in McAllen, as well as an emerging healthcare industry demonstrates that this area of South Texas is stable and prosperous.”

The financial rating agency looked at various factors, including revenue and expenditure frameworks (‘a’ and ‘aa’ respectively); long-term liability burden (‘aa’); and operating performance (‘aaa’)  in providing the rationale for the rating.   

  • Receiving an ‘a’ for its’ revenue framework, the City of McAllen’s revenue growth prospects are in line with the level of inflation; however, a recently passed state-wide cap on property tax revenue growth may weaken the city’s flexibility to raise revenue. 
  • However, the City received an ‘aa’ its expenditure framework, for maintaining a solid degree of expenditure control, generally aligning with demonstrated revenue growth.  
  • It also received an ‘aa’ for its long-term liability burden remaining moderate based on regional capital needs. 
  • McAllen’s budget flexibility and operating reserves provide exceptional gap-closing capacity through typical economic cycles, giving the municipality its ‘aaa’ rating.

The stable outlook reflects Fitch Ratings credit profile on McAllen, highlighting the McAllen MSA that was analyzed, as a major commercial and industrial hub for the Rio Grande Valley, focusing on trade, manufacturing, and tourism.  While some uncertainty for its economic bases exists because of the newly resigned the United States Mexico Canada Agreement (USMCA) trade agreement, which has yet to be ratified by each country’s legislated branch. 

However, the large retail and healthcare sector industries, with over a third of those shoppers coming from Mexico and a rise in Mexican citizens seeking medical treatment and services in the region.  The strength of its local and regional employment base, including government, tourism, and agriculture have helped for the positive ongoing tax base growth and planned development of the area were also contributing factors in the rating.

City Manager Roel “Roy” Rodriguez, P.E., was extremely pleased with the bond ratings, stating that the rating was indicative of the fiscally responsible and conservative approach that the City of McAllen has maintained in managing the city’s finances and investments, incurring debt slowly and developing a healthy fund balance.

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