Arizona’s Dynamic Healthcare Sector


Anthony Tanner, CFA®, is the Lead Portfolio Manager of Aquila Tax-Free Trust of Arizona

Here in Arizona, the healthcare sector is a vital component of the economy and a key contributor to the state’s growth. Demographic trends, such as the aging of the population and longer life expectancies, together with advancements in treatment and technology, have made healthcare a significant growth sector in Arizona. Beyond hospital and clinical care providers, Arizona’s dynamic healthcare sector encompasses institutions such as:

Barrow Neurological Institute, a world-renowned neurology and neurosurgery care center.
TGen, or the Translational Genomics Research Institute, an Arizona-based, nonprofit medical research institute that conducts groundbreaking research on the genetic components of complex diseases, including cancer, neurological disorders, and infectious disease.
The Phoenix Biomedical Campus, a 30-acre urban medical and bioscience campus in downtown Phoenix. This collaboration among University of Arizona, Arizona State University, and Northern Arizona University includes biomedical-related research, academic, and clinical facilities. It is home to the highest concentration of research scientists and complementary research professionals in the region.
Bioscience funding leaders including the Flinn Foundation.

The expansion of the Arizona healthcare sector is also necessary in serving a population that continues to grow faster than the national average and captures a significant share of the shifting national population. The state ranked 4th in both population growth at 1.7% and absolute population increase at 122,000 in 2018. Arizona continues to attract a significant portion of those relocating, ranking 3rd for net migration. In 2019 the state is expected to see an increase in population above 100,000 for the third consecutive year.

Healthcare is an important engine of growth and employment stability in Arizona. Even during the Great Recession, employment in the healthcare sector expanded at a time when Arizona shed nearly 300,000 jobs and total employment contracted 11% (Nevada was the only state with a steeper decline in the period).


An advanced, diverse, and thriving healthcare industry is critical to Arizona, serving both as a magnet for attracting new residents, and providing world-class medical care to a state population that surpassed 7 million last year. Aquila Tax-Free Trust of Arizona (“ATFTA”) participates in this important economic driver through investments that support important healthcare projects. Last fall, the Fund added new holdings in this sector through two new issues sold to expand existing facilities, at a time when other parts of the country are seeing hospital systems shutter facilities as their populations stagnate or even decline.

In October, we made a new investment in the Maricopa Integrated Hospital System through a purchase of AAA-rated general obligation bonds sold through the Maricopa Special Healthcare District. In addition to providing funds for system-wide improvements to its existing county-wide facilities, $100 million of this $422 million issue is going toward the building of an extension of the Creighton University Medical School in central Phoenix. The four-year medical school is slated to open in August 2021 with 85 students; the facility will also be part of a health sciences campus with nursing and physical therapy programs. It will be a branch of the Omaha-based school and not a separately accredited medical school.

We also participated in a $195 million new issue for the Honor Health System in which $120 million of proceeds will be used to build a new hospital facility in the North Valley area of Phoenix. These bonds were A2 rated by Moody’s with a stable outlook, and A by Fitch with a positive outlook. Honor Health Sonoran Medical Center will be located adjacent to Honor Health’s existing John C. Lincoln emergency center. It is expected to open to patients in September 2020, initially with 40 licensed beds, and with plans to expand to an additional 39 beds within three years. Similar to its Thompson Peak Medical Center, which opened in 2007 with 120 licensed beds serving north Scottsdale, this facility will bring essential medical services and facilities to the rapidly growing suburbs in the Phoenix North Valley corridor. According to Census figures, the primary service area the facility encompasses saw population growth of 4.7% between 2010 and 2016, compared to overall US growth of 3.2%.

These two recent issues illustrate the transformation in Arizona healthcare being driven by medical research and facility expansion in the state. A full list of Fund holdings may be found on our website.

Arizona has a relatively short history in medical education. It did not have a medical school until 1971, when University Medical Center in Tucson was established, while some parts of the county have had medical schools for over 200 years. Even though medical education in the State has grown in the past 10 years with the additions of the Phoenix branch of the University of Arizona College of Medicine and Mayo Clinic’s School of Medicine campus in Scottsdale, Arizona still has a relatively low number of medical students per capita. This is one reason growth of the physician population in the state has not kept up with overall population growth, which points to the essential need for in-state medical education that can provide more doctors.

The expansion of medical facilities is indicative of the vibrancy of the statewide healthcare economy. Maricopa County is served by several hospital organizations that have expanded facilities throughout the valley in the past 10 years. Along with new projects associated with our recent bond purchases, there are several other major projects underway, totaling almost $1.4 billion in financing. These include a $648 million expansion of the Mayo Clinic’s Phoenix campus that will double its size in 5 years, a new $150 million Banner Health Medical Center in Chandler, and a $100 million addition to Mercy Gilbert Medical Center that is a joint venture between Dignity Health and Phoenix Children’s Hospital.

Across the state, Flagstaff, Prescott, and Yuma are all served by hospital groups that have experienced steady growth with stable financial positions, as reflected by their high credit quality ratings. These hospitals are essential to the quality of life of these smaller regional populations. All have undergone renovations and upgrades to modernize and expand the medical services available to these out-lying regions of the state.

With these recent purchases of the Maricopa Special Healthcare District and Honor Health issues, added to our existing investments in Arizona healthcare bonds, healthcare is now the largest sector / industry position in the ATFTA portfolio. Our holdings are diversified throughout the state and across the various differing hospital groups in the state. We believe this sector has the potential to continue demonstrating a combination of high credit quality and attractive yields, and that the sector will continue to be well-represented in the fund.

Before investing in one of the Aquila Group of Funds, carefully read about and consider the investment objectives, risks, charges, expenses, and other information found in the Fund prospectus. The prospectus is available on this site, from your financial advisor, or by calling 800-437-1020.

Mutual fund investing involves risk; loss of principal is possible. Investments in bonds may decline in value due to rising interest rates, a real or perceived decline in credit quality of the issuer, borrower, counterparty, or collateral, adverse tax or legislative changes, court decisions, market or economic conditions. Fund performance could be more volatile than that of funds with greater geographic diversification.