Bourbon Boom Creates Revenue for Kentucky


Whether you enjoy a glass occasionally or have sworn off brown liquor since college, there is no denying that bourbon distilling has once again become a big business for the state of Kentucky. Horses and coal put the state on the map, but bourbon is what is drawing the largest crowds, leading distillers to undergo capital improvements of over $2.3 billion collectively along the bourbon trail.

Distilleries in Kentucky employ just over 20,000 people with annual payroll of close to $1 billion. Recent estimates show 9.2 million barrels of bourbon currently aging in rickhouses, a little over two barrels per Kentuckian, generating property tax revenues of approximately $29 million annually. While this is good news for the State’s finances, it is causing issues for distilleries big and small. Kentucky is the only state with a barrelage tax, which may ultimately be accountable for the sudden growth of distilleries outside of Kentucky. In 2014, the Kentucky legislature passed a corporate income tax credit to help offset the taxation, however, the rapid increase in aging barrels has greatly reduced the benefit of the tax credit. The value of aging barrels was around $3.8 billion in 2020, an increase of $400 million since 2019 and twice the assessed value of barrels in 2010.

Booms and busts

Prior to 2019, the previous peak of barrels in rickhouses was in 1968 when the state had 8.7 million barrels aging. Bourbon started losing its luster in the 1970s and was out of favor through the 1980s when rum and vodka took over the top spots nationally. During that time, much of the bourbon produced in Kentucky was exported overseas. However, prominent bourbon distillers saw an opening for another domestic bourbon boom in the late 1990s, when the Beverage Testing Institute in Chicago obtained a bottle of Pappy Van Winkle in 1997 and gave it a score of 99 out of 100 – the highest rating ever given to a whiskey. Anticipating the resurgence of bourbon enthusiasts, the Kentucky Distillers Association started the Bourbon Trail in 1999 with ten distillers. Today there are 38 distilleries only 20 minutes from each other, and the total barrelage has increased 164% since 2000. Read more “Bourbon Boom Creates Revenue for Kentucky”


Kentucky Experiences Substantial Growth in Logistics


Kentucky revenue has held up well during the COVID-19 pandemic. General fund revenue for the current fiscal year was up 5.6% through the end of 2020, increasing 16.1% in December after a slight downturn in November. One notable business sector contributing to revenue growth in the state is logistics.

The business of logistics is a critical component of supply chains, and is growing at a rapid pace in Kentucky, employing close to 83,000 people. Kentucky’s central location in the Ohio Valley makes it a prime spot for distribution across the United States for many suppliers and shippers. Leaders in the sector are pushing Kentucky legislators to provide funding and subsidies to help build out the State’s infrastructure in areas surrounding warehouses and airports. To date, lawmakers have provided resources to help with traffic problems around Shepardsville, where a third cloverleaf highway interchange has been completed to help alleviate tractor trailer congestion.

To further ease major traffic problems related to the sector’s rapid expansion, a new warehouse area has been established slightly further south near the Bardstown exit off of Interstate 65. McKesson Corporation, the oldest and largest healthcare company in the nation, recently signed a lease in the Shepardsville area for a one million-square-foot warehouse which is currently being used to distribute COVID-19 vaccines. Five weeks prior to the first vaccine shipping date in mid-December, the CDC along with project Warp Speed, was involved in helping build out refrigeration units to store vaccine doses for Pfizer and Moderna. With the world watching, the first shipment of Prizer-BioNTech vaccines departed the Louisville UPS Worldport Hub on December 13, 2020. The UPS Worldport Hub is the second largest freight enplanement airport in the U.S. and fourth largest worldwide.
Read more “Kentucky Experiences Substantial Growth in Logistics”


Taxable Municipals – Myths and Misperceptions


Anthony Tanner, CFA®

Taxable Municipal Bonds grabbed the attention of not only municipal bond market participants in 2020, but also of investors and financial professionals globally across the asset class landscape.

Nationally, new issue volume growth was confined to the burgeoning taxable municipal bond sector, where issuance doubled from $72.2 billion in 2019 to $145.2 billion in 2020. By comparison, tax-exempt issuance in the municipal bond market declined slightly from $354 billion to $328 billion.

The eye-popping issuance figures for taxable municipal securities made headlines throughout the year. The $145 billion of new taxable municipal bonds were issued as fully Federally taxable, but in most cases, retained the applicable state tax exemption. This accounted for almost one third of all municipal bonds issued and ultimately accounted for the entire increase in total issuance in 2020. The prominent rise of this mechanism in the municipal market occurred as a consequence of the component of the 2017 Tax Cuts and Jobs Act which eliminated tax-exempt advance refunding of tax-exempt issues.

Questioning The Tax Exemption – Again

With taxable municipals accounting for such a prominent slice of state and local government borrowing there has been growing speculation in the financial press, and among market participants, about what this means for traditional tax-exempt financing. Common viewpoints gaining traction have called into question the need for traditional tax-exemption in municipal finance and even suggested the success of taxable issuance in 2020 proves municipal bonds can exist without the tax-exemption.

This speculation has been fueled by a number of misperceptions about the municipal bond market and the nature of public finance. The explosion in taxable issuance ultimately resulted from the confluence of two watershed developments:

• The arbitrary prohibition of the advance refunding mechanism that had been a staple of municipal finance for 100 years.

• Generational lows in benchmark U.S. Treasury yields off of which the yields of other taxable securities are “spread” by a variety of taxable investors.

What these developments ultimately point to is the simple continuation of the old fashioned resourcefulness of the nation’s municipal finance officials: optimizing the borrowing costs of their taxpayers and constituents, rather than a long-run steady state “transformation” of the municipal bond market.

Tax Cuts and Jobs Act – Where It All Began

The 2017 Tax Cuts and Jobs Act (TCJA) was signed into law on December 22, 2017. It was hailed as significant tax reform, primarily for its reduction in marginal individual income tax rates, although its “significance” seems muted compared to the 1986 Reagan-style tax reform that dropped top rates from 50% to 28%. Of greater impact to the municipal market was its provision that prohibited the advance refunding of tax-exempt securities with proceeds from tax-exempt issues.
Read more “Taxable Municipals – Myths and Misperceptions”


Chris Johns Covered Munis on CNBC’s The Exchange


Aquila’s municipal bond fund portfolio manager, Chris Johns, was a recent guest on CNBC’s The Exchange with Brian Sullivan. Chris and Brian discussed the growing size of outstanding municipal bond debt and the importance of in-depth credit research in an environment where demand is high and credit spreads are narrow. Chris also shared his thoughts on current credit trends and the risk profile of municipals.

You can watch Chris’ segment on CNBC’s website, under The Exchange’s Muni Money section, or listen to the segment on The Exchange’s January 29th podcast; available on all podcast platforms.

Chris has managed Aquila Tax-Free Fund of Colorado for over 30 years and Aquila Tax-Free Trust of Oregon, which he co-manages with Tim Iltz, since 2011.

Shares of the Funds may only be sold by offering the Funds’ Prospectus. Before investing in a Fund, 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 adviser, and when you call 800-437-1020.


The Wall Street Journal Quotes PM Chris Johns on Muni Issuance Boom


Chris Johns

Municipal bond issuance is at a 10-year high, reports The Wall Street Journal earlier this week. And Wall Street’s paper of record reached out to Aquila portfolio manager Chris Johns for his insights on the boom.

Muni bond issuance totaled $474 billion in 2020 as state and local governments took advantage of low interest rates to raise capital while revenue streams continued to decline due to pandemic pressures. Taxable issuance was up for the year as governments took advantage of the ability to fill budget gaps with those funds, and lower-rated borrowers caught a break as risk tolerance shifted with the search for yield.

“Alongside the drop in yields, another factor driving the borrowing was that yield-hungry investors were willing to accept less interest from lower-rated borrowers relative to what they demanded from higher-rated ones”  – Chris Johns


Mr. Johns has managed Aquila Tax-Free Fund of Colorado for over 30 years and is a co-portfolio manager, along with Tim Iltz, of Aquila Tax-Free Trust of Oregon.


Shares of the Funds may only be sold by offering the Funds’ Prospectus. Before investing in a Fund, 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 adviser, and when you call 800-437-1020.


A Distinctive Midcap Fund Celebrates 10 Years


The Aquila Three Peaks Opportunity Growth Fund strategy celebrated its 10-year anniversary in the fourth quarter of 2020. In October 2010, the management team at Three Peaks Capital Management brought a new approach to Aquila’s equity fund, which was launched as a rocky mountain regional investment strategy in 1994. Through detailed research of the corporate debt market for the management of Aquila Three Peaks High Income Fund, industry veteran, Sandy Rufenacht, and his team noticed that prudent corporate actions taken to improve balance sheets, reduce debt and create free cash flow often laid the groundwork for potentially strong equity returns.

Over the past decade the Fund has been recognized by Barron’s, Lipper, the Wall Street Journal, Investor’s Business Daily, and a number of other publications. We credit the Fund’s success to the distinctive management process that is rooted in intense research and built on extensive experience in the high-yield market.

A conservative approach

We attempt to mitigate risk by looking for companies in industries with relatively consistent revenue generation (non-cyclical industries), that have demonstrated the ability to grow even in a low-growth economy. Our strategy is to maintain a broadly diversified, well researched, well balanced portfolio to reduce volatility. We implement this strategy through a fundamental, bottom-up analysis of each company in which we invest.

If you are looking for an equity fund with a management strategy unlike many of its peers, take a closer look at Aquila Three Peaks Opportunity Growth Fund.
Read more “A Distinctive Midcap Fund Celebrates 10 Years”


Actual 2020 Capital Gain Distributions


Following are capital gain distributions paid on December 3, 2020, and December 30, 2020.

Aquila Three Peaks Opportunity Growth Fund paid a short-term capital gain distribution of $1.70172, and a long-term capital gain distribution of $0.70763 on December 3, 2020 with a record date of December 2, 2020.

Hawaiian Tax-Free Trust paid a long-term capital gain distribution of $0.02283 on December 30, 2020 with a record date of December 29, 2020.

The following funds did not capital gains distributions in December, 2020.


Aquila Tax-Free Trust of Arizona
Aquila Tax-Free Fund of Colorado
Aquila Churchill Tax-Free Fund of Kentucky
Aquila Narragansett Tax-Free Income Fund (RI)
Aquila Tax-Free Trust of Oregon
Aquila Tax-Free Fund For Utah
Aquila Three Peaks High Income Fund

Printable Version

1 Represents undistributed realized gains from fiscal year 2020 which must be distributed in 2020 and cannot be reduced.

Aquila Distributors LLC does not provide accounting, tax or legal advice. Shareholders should seek tax advice based upon their particular situation.

Shares of the Funds may only be sold by offering the Funds’ Prospectus. Before investing in a 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, and when you call 800-437-1020 or visit www.aquilafunds.com.


Tony Tanner, CFA® Discusses the Muni Market on Asset TV Masterclass


Tony Tanner, CFA®, Portfolio Manager of Aquila Tax-Free Trust of Arizona, was among a panel of municipal experts on Asset TV’s November 2020 Municipal Bond Masterclass. The full program, which offers one hour of CE credit, covers municipal credit, the impact of the coronavirus pandemic, macro considerations for investors, and much more.

Watch Tony’s portion of the program for his thoughts on the municipal bond market, finding credit opportunities and which sectors he is watching closely.


Mr. Tanner is Senior Vice President of Aquila Investment Management. He is the Lead Portfolio Manager for Aquila Tax-Free Trust of Arizona and also co-manages Aquila Tax-Free Fund for Utah and Aquila Churchill Tax-Free Fund of Kentucky. Joining Mr. Tanner on the panel were Grant Dewey, Head of Municipal Capital Markets at Build America Mutual, and David Hammer, Head of Municipal Bond Portfolio Management at PIMCO.

We hope you find the program informative.

Shares of the Funds may only be sold by offering the Funds’ Prospectus. Before investing in a Fund, 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 adviser, and when you call 800-437-1020.


Updates and Perspectives: The Arizona Economic and Pandemic Recovery


Arizona recently reported an unemployment rate of 6.7% in September, adding 30,200 more jobs. While it was an increase from the 5.9% rate reported in August, the uptick was fueled by an increase of 150,000 in job seekers entering the labor pool. This jump was attributed to the quickly recovering state economy that offered motivation and hope for those who had lost jobs when the state economy was “furloughed” in April.

The reopening of the economy following the end of Governor Ducey’s shelter at home mandate has helped drive the unemployment rate down almost 40% from a 10.7% rate in July. Arizona now boasts an unemployment rate well below the overall US rate reported in September of 7.9%. Impressively, only two states larger than Arizona (Virginia and Georgia) reported a lower unemployment rate (6.2% and 6.4%, respectively) in September.

Payrolls Protected are the Key

Arizona’s economic recovery from the Coronavirus pandemic accelerated dramatically in the past quarter.

Most encouraging has been the resilience of overall employment levels in the state. The employment base is the lifeblood of the State economy and can be a significant proxy for the health of the state and local government finances. Maintaining employment levels translates to jobs kept, household incomes maintained, income and sales taxes paid, and tax bases sustained.

From August 2019 – August 2020 employment in the state declined only -3.2%, ranking 4th lowest in the nation and the best among any state of its size or smaller. This deterioration in the employment base was less than half the U.S. average of -7.0% for this period.

This is especially impressive when considered within the context of the largest states. Arizona is currently the 14th most populous state. Among the thirteen larger states by population, only three (also “sunbelt states”) retained a higher share of jobs than the national average:


Fiscal Stimulus: Everyone Benefits When Small Business Wins

Arizona is seeing the massive injection of fiscal stimulus weave its way into the economy. The Payroll Protection Program (PPP) Loans have been one of the main contributors to economic stability to towns and local governments in Arizona. According to SBA figures, over $8.6 billion of PPP loans have been made to 81,000 recipients in Arizona, potentially saving over 750,000 jobs statewide. This encompasses a broad swath of industries, businesses, and organizations throughout the State.

Almost 70,000 such loans were for less than $150,000. This was a critical component of Arizona’s employment resilience as small businesses are an especially prominent engine of the Arizona economy. The massive fiscal response of the Federal government to the Coronavirus Pandemic, and its implementation at the state and local level, helped employment at small businesses rebound dramatically.

When widespread lockdowns of state economies took place last April, employment at small businesses with 49 or fewer employees experienced a decline that was three times that of larger companies with over 500 employees. But by the end of September, after the sizeable fiscal relief was targeted to small business, employment of those small employers had shown the largest recovery:

Read more “Updates and Perspectives: The Arizona Economic and Pandemic Recovery”


Colorado Local Bond Measure Election Analysis


This year Colorado voters will be presented with approximately 1.5 billion in K-12 municipal issuance and mill levy overrides in 20 school districts, as well as Amendment B, a statewide ballot measure that would repeal the Gallagher Amendment, and Proposition 116 to reduce the state income tax rate. The Gallagher Amendment is a constitutional limit to the amount of property tax revenue Colorado residential property owners pay, currently 45%, compared to the 55% nonresidential property owners pay of the overall property tax revenue.

See Portfolio Manager Chris Johns’ comments on the Gallagher Amendment in a recent article  published in the Denver Post.

Property tax revenue supports public schools, county governments, special districts and municipal governments. The residential assessment rate is currently 7.15% for residential properties and fixed at 29% for nonresidential properties. A repeal of the Gallagher Amendment will keep the residential assessment rate at 7.15% for residential properties and will eliminate projected future reductions in the residential assessment rate, which could result in higher property taxes for residential taxpayers in the future. Proposition 116 is a statewide ballot issue that would reduce the state income tax rate from 4.63% to 4.55%. The passage of Proposition 116 could reduce state income tax revenue by $154 million in fiscal year 2021-22.

School Bond Issues

Unlike at the state level, where Colorado has experienced difficulty in passing tax increases, voters have historically shown a willingness to approve local bond issues. These measures are used to finance new schools and other capital improvements throughout the state. School district bond issues on the November ballot range in size from approximately $220,000 to as much as $795 million.