Another Indication that the Rio Grande Valley is Weathering the Recession Better than Most of the Country

Another Indication that the Rio Grande Valley is Weathering the Recession Better than Most of the Country

McAllen credit rating upgraded
Standard and Poor's calls it the best in Rio Grande Valley

Nick Pipitone
The Monitor

McALLEN –- The city’s credit rating was recently upgraded by the financial services company Standard and Poor’s, another indication that the city and regional economy are weathering the recession better than most of the country.

S&P cited continued employment and population growth, an increasingly diversified economy, strong financial management policies and moderate overall debt levels as the primary reasons for upgrading the city’s rating two spots, from AA- to AA+, the second-highest possible rating, behind AAA.

Horacio Aldrete-Sanchez, S&P’s primary analyst on the McAllen rating, said the city has the highest rating in the Rio Grande Valley. It also brings the city in line with the state’s bigger metro areas and other mid-level U.S. metro areas S&P considers financially stable, like Knoxville, TN and Cincinnati, OH.

The city requested S&P re-visit their credit profile in August because they no longer had any outstanding debt bonds, which is what credit agencies usually rate, city Finance Director Jerry Dale said.

“I know the agencies have all been reviewing credit in light of what they’ve called the new international standards,” Dale said. “Because of that, I wanted them to look at the city to see where we were in comparison to others.”

The city will also be looking to issue approximately $14 million in debt to fund the new main library at North 23rd Street and Nolana, so will be soon accessing the credit markets again, Aldrete-Sanchez noted in the report S&P issued last month on the city’s new rating.

The higher credit rating is a “significant step” for the city, Aldrete-Sanchez said, and will mean a couple of things.

First, the city will be able to borrow money at a lower cost when looking to fund capital improvement projects, which could translate to savings of up to $1 million in the library bond transaction, City Manager Mike Perez said.

For residents, those savings should help the city keep its tax rates and utility fees low, Dale said.

The higher rating also can be used as a recruiting tool to draw companies looking to relocate.

“When (companies) look at a community, it’s important to them that it’s well-run, stable and tends to be pro-business, or at least not anti-business,” said Keith Patridge, president of the McAllen Economic Development Corporation. “To increase the credit rating for the city, it very clearly through a third party demonstrates that McAllen hits all three.”

The credibility of financial research and analysis companies like S&P and Moody’s took a hit during the economic meltdown last fall. Both agencies had several of the sub prime loans and bonds that contributed to the financial collapse rated high, sometimes at AAA. But the agencies’ track record on local government and municipal bonds is better, and most investors still look to them, said Ansley Chua, finance professor at the University of Texas Pan-American.

“People still trust them,” Chua said. “We basically have nobody else to grade them, so we kind of have to trust somebody.”

Dale said the city has been working to improve its credit profile for several years and reverse the misperception held by many investors that the Rio Grande Valley was “a collection of dusty little towns with no economic development and everybody starving to death.”

Since 1982, the city’s rating has improved from A-plus to AA-minus in 2004, to its AA-plus rating today.



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