09/27/2018

S&P Evaluates Kentucky Turnpike Authority’s Obligations

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S&P Global Ratings recently lowered their rating on the Kentucky Turnpike Authority’s economic development road revenue bonds to A- from AA- , and assigned a stable outlook. The bonds maintain their ratings of A+, and Aa3, with Fitch Ratings and Moody’s, respectively. According to S&P, reasoning behind the downgrade is related to their change in issuer credit ratings methodology that was effective in January, 2018, as well as increasing financial pressure; primarily, the Turnpike Authority’s obligation to fund pension contributions for the State Police Retirement System.

The Kentucky Turnpike Authority (KTA) has $1.2 billion of outstanding revenue and refunding bonds, and unlike turnpikes in other states, the debt is not backed by toll revenue. The debt is secured by tax and fee revenue, and payments are subject to legislative appropriation under a lease structure with the State Transportation Cabinet.

In the past, S&P viewed funds from taxes, fees and other turnpike revenue as a dedicated revenue stream for bond payments, but under their revised criteria for credit ratings linked to an obligor’s creditworthiness, they no longer consider these funds to be legally dedicated to bond payments, but rather a general fund revenue source tied to unfunded pension liabilities. Without a dedicated revenue stream for bond payments, S&P’s rating of KTA’s bonds will be linked to the state’s creditworthiness. They will be rated one notch below, and move in tandem with, Kentucky’s issuer credit rating.
Read more “S&P Evaluates Kentucky Turnpike Authority’s Obligations”

09/06/2018

Valuable New Resource for Facts on Retirement

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On September 5, 2018, FactsOnRetirement.org was launched by the Investment Company Institute. On the new site, extensive research and data is provided on the US retirement system demonstrating the strength and effectiveness of the system, dispelling misconceptions, and providing information and resources for those interested in learning more.

“ICI has a team of experts dedicated to studying the US retirement system and FactsOnRetirement.org will help make their work more readily available and easily accessible to the growing body of academics, policymakers, and the public who are engaged on this important issue,” said ICI President and CEO Paul Schott Stevens. “Whether you’re new to the issue or a seasoned expert, we believe this site will be a valuable resource that shows how we can build on the strengths of the current system to enhance retirement savings—and security—in the United States.”

The site consists of four sections:  Retirement by the Numbers, Myths vs. Facts, Tips for Savers, and Additional Resources.  Whether you are in retirement, planning for retirement, or advising clients, you’ll find interesting and valuable information, well worth your time and attention.

The Investment Company Institute (ICI) is the leading association representing regulated funds globally, including mutual funds, exchange-traded funds (ETFs), closed-end funds, and unit investment trusts (UITs) in the United States, and similar funds offered to investors in jurisdictions worldwide. ICI seeks to encourage adherence to high ethical standards, promote public understanding, and otherwise advance the interests of funds, their shareholders, directors, and advisers. ICI carries out its international work through ICI Global, with offices in London, Hong Kong, and Washington, DC.

08/20/2018

2018 Aquila Tax-Free Fund For Utah Annual Shareholder Meeting

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Shareholders of Aquila Tax-Free Fund For Utah are cordially invited to attend their annual shareholder meeting Thursday, October 25, 2018 at 8:30 a.m. at the Grand America Hotel in the Imperial Ballroom A and Reception Room A, 555 Main Street, Salt Lake City, Utah. A buffet breakfast will be served prior to the meeting.

Attendees will have the opportunity to visit with Fund Executives, Trustees, the Portfolio Managers and hear Utah State Senator and former Trustee, Lyle Hillyard speak about the Utah economy.

Mr. Hillyard has been a member of the Utah State Senate since 1985 and has practiced law in the state for over 40 years. He has served as the Senate Majority Leader and President of the Utah Senate. Through his illustrious career he has received many awards and recognitions including the Cache Chamber of Commerce Total Citizen of the Year Award in 1996 and the Distinguished Legislator Award from the Utah Trial Lawyers Association in 2003.

We look forward to seeing you in Salt Lake City.

07/26/2018

Tony Tanner on Asset TV Fixed Income Masterclass

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On June 20, 2018, Tony Tanner, lead Portfolio Manager of Aquila Tax-Free Trust of Arizona, participated in a Fixed Income Masterclass panel for Asset TV.  Co-panelists were Lisa Black, Taxable Fixed Income Senior Managing Director at Nuveen, and Marty Fridson, Chief Investment Officer with Lehman, Livian, Fridson Advisors.

During the program, Tony Tanner discussed opportunities in the municipal bond market, variations among market yields, the continuing advantage of investing with a double-tax exemption, important fixed-income characteristics that investors should pay attention to, and the importance of professional management in the municipal bond market.  Tony concluded his comments by pointing out his view that “municipal bonds are the blue jeans of the (fixed income) asset class.  They’re never the height of fashion, but they’re always in style.”

In addition to Tony’s comments, Lisa Black provides perspective on the high yield corporate bond market, and Marty Fridson provides a broad perspective on global fixed income markets and the importance of portfolio diversification.

We hope you find the program informative.

You’ll find additional information regarding Aquila Tax-Free Trust of Arizona on this site, along with the Fund prospectus.

06/18/2018

Muni Market Needs Local Newsrooms

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The “watch dogs” keeping an eye on local politics are disappearing and that is resulting in higher borrowing costs for small issuers. A recent study entitled “Financing Dies in Darkness? The Impact of Newspaper Closures on Public Finance” details the costs associated with issuing debt in small towns that have lost their local newspaper.

Many small town newspapers are closing due to a decline in subscribers and local advertising. Traditionally, these papers invested time and resources in following local governments, and dedicated print space to keeping citizens well-informed regarding the activities of city officials, while holding those officials accountable for their decisions. A Pew Research report indicated that a 27% drop in newspaper subscribers from 2003 to 2014 resulted in a 35% drop in State House reporters. These reporters had been gathering information on local governments and reporting their findings. There is concern that a reduction in, or lack of, reporting may lead to increased government waste, less effective schools, and an increase in incidents of corruption. When local governments are not held accountable for their decisions, investors in the debt issued by these governments are likely to require a higher rate of interest to offset the perceived risks.

There are many examples around the country that highlight the value of political reporting by local newspapers – here are a few that we find interesting. A city in Utah decided to construct a new City Hall, and the construction plans included demolishing a school building and closing a portion of a main road. When the local newspaper reported on the decision, the city’s residents opposed the decisions made by local leaders. After months of pressure, city officials decided to rescind the decision to build the new City Hall. Read more “Muni Market Needs Local Newsrooms”

06/14/2018

PERS Liabilities and Local Management of Aquila Tax-Free Trust of Oregon Highlighted by Oregon Business

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Tim Iltz

Aquila Tax-Free Trust of Oregon Co-Portfolio Manager and Credit Analyst, Tim Iltz, recently shared his insights on Oregon’s Public Employees Retirement System (PERS) in an article published by Oregon Business, How PERS Liabilities Vary Wildly Across State. Tim’s knowledge of how PERS funding liabilities affect Oregon’s state and local governments illustrates the value of a local management presence, and the ongoing credit analysis provided by Aquila Group of Funds.

Although the PERS system is underfunded, many Oregon local governments have managed to develop budgeting practices and financial management policies specifically addressing this concern. The local management team of Aquila Tax-Free Trust of Oregon consistently monitors all credits in the portfolio.

When researching municipal bond issuers and PERS employers with significant unfunded pension liabilities, credit analysis and due diligence can put pension liabilities into context to determine the potential extent to which PERS funding may be impaired; a situation which varies from employer to employer. Pension concerns and the complexities and nuances of PERS funding heighten the importance of local credit analysis and selective portfolio management.

06/13/2018

Seasonality in the Municipal Bond Market

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Summertime typically finds municipal bond investors spending more time away from home – and potentially discovering that some of the individual municipal bonds they hold have converted to cash.

In the municipal bond market, summer has come to be known as the season for redemptions, since the months of June through August have a higher proportion of maturity dates and call dates than any other period of the year. During the upcoming summer season, the available supply of municipal bonds may decline significantly. This year, we expect to see maturing outstanding municipal bonds exceed new issue supply by roughly $80 billion; double the $40 billion average of the past few years.

This estimate is being based on forecasts indicating that more than $146 billion in outstanding bonds will either reach their final maturity date or be called on an optional call date. The difference between the volume of new issues and redemptions is often referred to as “net new issuance”. This year, net new issuance of negative $80 billion will leave investors challenged to replace their tax-exempt holdings and maintain their double-tax free income streams. This situation may be particularly problematic in states where the income tax rates are high, creating high demand for in-state municipal bonds.

For example, the State of Arizona is forecast to experience nearly $5 billion in redemptions, making it the 8th highest state in the nation for redemptions during this period – even though it normally ranks near the middle of the 50 states for overall issuance. (Source: Bloomberg)
Read more “Seasonality in the Municipal Bond Market”

06/07/2018

Double Tax Exempt Income Can Make a Difference

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The advantage of earning income that is exempt from both federal and state income tax can make a meaningful difference to investors.

Barron’s recently reported* on the benefit of double tax-exempt income, particularly under the new tax legislation passed in late 2017.  The same article also provides a simple calculation for determining what is known as the taxable equivalent yield, or TEY.  Calculating the taxable equivalent yield enables an investor to compare the yield on a taxable bond to the yield on a bond producing income that is exempt from both federal and state income tax.  (*Subscription may be needed.)

To see how beneficial double tax-exempt income can be to you, see the illustrations on this site for each of the states in which we manage a state municipal bond fund:   Arizona, Colorado, Hawaii, Kentucky, Oregon, Rhode Island and Utah.  Each illustration shows what a taxable investment would have to yield to match a tax-free investment which is exempt from federal and state income tax.

 

For certain investors, some fund dividends may be subject to federal and state taxes, including the Alternative Minimum Tax. Consult your professional tax advisor.

The taxable equivalent yields displayed do not take into consideration individual taxpayer limitations on deductions. 

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.

Before investing in the Fund, carefully read about and consider the investment objectives, risks, charges, expenses and other information found in the Fund prospectus. The prospectus is available from your financial advisor, when you call 800-437-1020, or on this site

05/30/2018

Recent natural disasters in Hawaii not seen as a credit risk

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UPDATE:  On May 30, 2018, Fitch Ratings reported that, based on their review of the impact of ongoing volcanic activity on the island of Hawaii, the state’s financial flexibility along with federal and state government support indicated that a rating change is unlikely for Hawaii’s public finance, port and airport credits.  Fitch did indicate that they expect some short-term peripheral economic effect related to tourism, which they anticipate will be mitigated by financial support from the sources mentioned.

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In recent weeks S&P Global Ratings and Fitch Ratings expressed opinions on the ability of Hawaii government entities to cope with flooding, mudslides, an earthquake and a volcanic eruption, all of which have occurred since mid-April.

S&P stated that, at this point, they don’t expect the eruption of the Kilauea Volcano to significantly impact their AA-/Stable credit rating of Hawaii County.  The rating agency will continue to evaluate the situation, along with the duration and on-going impact of the eruption, which had damaged local roads, highways, power lines, and a number of residential structures as of this writing.

A Fitch Ratings analyst, Stephen Walsh, was quoted in Bond Buyer as saying “It doesn’t take away from the tragedy from an individual standpoint, but looking at the bottom line, we don’t expect it to have a financial impact on either Hawaii County or the state”.

Based on the Hawaii County fiscal 2017 audit, S&P expressed the opinion that the county maintains strong liquidity levels, along with a balance of over $5.7 million in its general fund for disaster and emergencies, and a general fund balance of approximately $25 million, which they consider strong.  In addition, there are expectations that the county will receive funding from the Federal Emergency Management Agency (FEMA) to assist with recovery efforts.

The state of Hawaii had previously received approval for millions of dollars in funding from FEMA following flash floods and mudslides on Kauai and Oahu, which occurred in mid-April.  That funding will assist Kauai County in making repairs to infrastructure and public facilities.  S&P highlighted the Kauai County general fund balance of nearly $50 million, which the agency considers to be very strong, along with liquidity of $71 million, also viewed as very strong.

05/23/2018

The Tax Cuts and Jobs Act has been Beneficial for Colorado

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The Tax Cuts and Jobs Act (TCJA) has been positive for the supply and demand dynamic in the Colorado municipal bond market. TCJA eliminated tax-exempt advanced refunding, which has resulted in lower municipal bond issuance this year. The new law also limits state and local tax deductions to $10,000, which we expect will increase municipal bond demand from investors. Advanced refunding issues accounted for 18% to 29% of municipal bond supply from 2012-2017. The TCJA was the largest overhaul of the US tax code since 1986, and reduces individual and corporate income tax rates, which will affect most states by eliminating or reducing exemptions and deductions that were available prior to its passage. Individual and corporate income tax revenues in Colorado will increase by an estimated $196 to $340 million a year as a result.

The passage of TCJA is also expected to increase Colorado’s general fund by an estimated $309.3 million in fiscal year 2017-18, $207.3 million in fiscal year 2018-19 and $326.3 million in fiscal year 2019-20, according to the Colorado Office of State Planning and Budgeting’s December 2017 forecast. The substantial growth in fiscal year 2017-18 is a one-time increase, as investors postponed capital gain sales and corporations deferred tax liabilities in anticipation of federal tax law changes.

While TCJA is a positive for the state, Colorado’s Public Employees’ Retirement Association’s (PERA) unfunded liability is still a concern that we are monitoring. Senate Bill 18-200 was passed in the Colorado Legislature on May 9, 2018, to make modifications to PERA to reduce its unfunded liability. The TCJA is expected to provide consumers with more disposable income and will continue to expand Colorado’s economy at lower levels due to higher costs of living, tight labor markets and inflationary pressures as interest rates increase.