Get to Know Arizona’s 21st Century Healthcare Economy


Tony Tanner, CFA®, recently authored The Ascension of Arizona’s 21st Century Healthcare Economy for Phoenix’s inBusiness publication. Read the article to learn more about how the healthcare sector in Arizona has become a significant component of the state’s economy and a contributor to growth.

Tony Tanner

Tony Tanner, CFA®

Tony Tanner, CFA® is Senior Vice President of Aquila Investment Management and the Lead Portfolio Manager of Aquila Tax-Free Trust of Arizona.


Arizona’s Credit Rating Upgraded


On November 19, 2019, Moody’s Investor Service upgraded the state of Arizona’s credit rating from Aa2 to Aa1, which is the second-highest credit rating that the agency offers and the highest issuer rating that Arizona has ever received from Moody’s. The current outlook is stable. Moody’s has increased Arizona’s credit rating three times since 2009, and Arizona is the only state to receive two ratings upgrades since 2015. The State is now rated higher by Moody’s than at the outset of the credit crisis.

In a press release, Moody’s cited continued economic growth, a healthy rainy day fund and debt reduction as reasons for the upgrade. Since the great recession, the state has experienced strong growth of reserve funds partly due to diverse population increases over the last decade. As we have stated in our most recent investment commentary, Arizona has one of the most rapidly diversifying economies and fastest growing populations in the country and the state has done a commendable job preparing to support the increase. Paying down debt, strategic new borrowing, and thoughtful management of pension liabilities has positively impacted the state’s fiscal situation.

According to Governor Ducey, Arizona’s rainy day fund is currently at the highest level that is has ever been. Since 2015, the state has turned a $1 billion deficit into a $1 billion dollar surplus. Arizona continues to be committed to investing in K-12 education, public safety and infrastructure.

Aquila Tax-Free Trust of Arizona, is the state’s oldest single-state tax-exempt municipal bond fund in existence today, and has over 33 years of history investing in Arizona’s municipal bond market with a local portfolio management team. A hallmark of our investment process is having managers in the markets in which we invest so that we can see firsthand what is happening from a legislative and economic standpoint. The recent upgrade will positively impact the quality of our investment grade portfolio. As of 09/30/19, over 68.5% of our holdings were rated Aa or higher.

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 here, from your financial professional, or by calling 800-437-1020.

Consideration should be given to the risks of investing. Investments in bonds involve certain risks including a 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. For certain investors, some dividends may be subject to Federal and state taxes, including Alternative Minimum Tax (AMT). Please consult your professional tax advisor.

Independent rating services (such as Standard & Poor’s, Moody’s and Fitch) assign ratings, which generally range from AAA (highest) to D (lowest), to indicate the credit worthiness of the underlying bonds in the portfolio. Where the independent rating services differ in the rating they assign to an issue, or do not provide a rating for an issue, the highest available rating is used in calculating allocations by rating.


Oregon Local Bond Measure Election Results


Oregon residents approved over $820 million of general obligation bonds across the State on Election Day, which was historically strong. Although results are preliminary and have yet to be certified, bonds approved during this election far outweigh the $180 million approved during the May special election earlier this year. By election measure, approximately 67% of the issues were approved, with an approval of 88% of the total par amount requested. Oregon typically sees more ballot measures during general elections, which are held in November, of even-numbered years. Accordingly, the current election falls short of the 2018 November general election, which approved a robust $1.39 billion of new supply and set 2019 off to a strong start.


Over 80% of the principal amount approved by the election was for projects in the Portland Metropolitan area. Tax-rate and the overall par amount requested did not seem to weigh into voter decisions as much as demographics and geography. The measures with the highest tax rate and the highest par amount both passed. The majority of the bonds approved were for Metro’s $475 million general obligation bonds to finance regional programs to protect and improve water quality. Metro cited climate resiliency as a top priority during the development of the bond measure. According to Metro, future bond investments are intended to make communities more resilient to the effects of climate change.

Schools were also a significant consideration in this election with five schools requesting approval for almost $400 million in funding. A significant marketing point for all of the school bond issues was the Oregon School Capital Improvement Matching program, a grant program offered by the Oregon Department of Education, which supports communities that approve general obligation bonds for school improvements. Overall, this election is expected to generate over $20 million of grant disbursements from the state for school improvements. The only district that failed to pass its bond measure was Grants Pass School District No. 7. Josephine County has historically been a tough place to pass money measures. This is the third time in six years that district voters have declined to approve funding for school upgrades. Proceeds from the bond would have improved safety for staff and students. This includes doors, door locking and a new emergency alert system. Bond proceeds would have also replaced the district’s North Middle School.

Some of the elections were closer than others. The Lyons-Mehama Water District’s general obligation bond was last reported as passing in Marion County and failing in Linn County with the measure failing overall. If approved, the bond measure would pay for two water storage reservoirs, two new water mains to improve fire flow capacity and fund site improvements. The district’s primary tank used for storing treated water is made of wood and dates back to 1957. Due to the critical nature of the project, the district intends to ask for voter approval again during the next election, and plans to provide more voter education.

Overall, this election will provide a significant source of additional supply to the Oregon bond market, but since this election approved just over half the total par amount approved last November, sourcing bonds may prove more challenging from a supply perspective in 2020.



Colorado Local Bond Measure Election Results


The November 2019 midterm election was a mixed bag for the state. Proposition DD, a statewide ballot measure legalizing sports betting, passed with 51.4% of the vote and is set to effective in six months. The state was less fortunate on Proposition CC, a measure to end the cap on state tax revenue as required by the Taxpayer’s Bill of Rights. Compared to the November 2018 election, which approved $1.6 billion of bond issuance, this election was a success for local governments. Although results are preliminary and have yet to be certified, nearly $1.0 billion of general obligation bonds were approved by Colorado voters. By election measure, approximately 50% of issues were approved, which represents 72% of the total requested par amount.

There were more than 100 municipal measures on November ballots in Colorado. Ballot measures covered affordable housing, broadband, bond proposals for public improvements, economic development, governance, marijuana, tax increases, sports betting and transportation. All four TABOR over-ride ballot measures were approved by voters in addition to $124.4 million of city bond issues.

Colorado voters were faced with $1.2 billion of school bond issues and mill levy overrides in 22 school district elections, almost on par with the $1.4 billion school districts requested from voters in 2018. School district bond issues on the ballot ranged from $1.6 million to $400 million. Voters approved five of the twelve school district bond issues for $900 million that will fund new schools and capital improvements. In addition, voters also approved $27.0 million in school districts mill levy overrides.

Overall, voters continue to demonstrate a willingness to approve local bond issues, which provide new schools and other capital improvements throughout the state. The results of these elections will provide a significant source of additional supply to the Colorado bond market later this year and into 2020.


2019 Aquila Tax-Free Fund For Utah Annual Shareholder Meeting


Shareholders of Aquila Tax-Free Fund For Utah are cordially invited to attend their annual shareholder meeting Tuesday, November 19, 2019 at 8:30 a.m. at the Little America Hotel, 500 South Main Street, Salt Lake City, Utah. Breakfast will be served prior to the meeting.

Attendees will have the opportunity to visit with Fund Executives, Trustees, the Portfolio Managers and hear from Brian Butler, CPA and CFO of Salt Lake City Corporation’s Department of Airports. In his role as CFO of the Airport, Brian is responsible for overseeing the construction budget and debt financing of the new Salt Lake City Airport that is scheduled to begin opening in 2020.

Mr. Butler received his bachelors degree in Corporate Finance from Brigham Young University, an additional bachelors degree in Accounting from Utah Valley University, as well as a Masters of Accountancy from the University of Utah. He is a CPA and belongs to both the Utah Association of Certified Public Accounts as well as the American Institute of Certified Public Accountants. Prior to joining the Airport in 2015, Brian worked in public accounting as an auditor for Eide Bailly, as well as a Financial Representative for Fidelity Investments.

We look forward to seeing you in Salt Lake City.


Colorado’s November Ballot – School Bonds


On November 5, 2019, Colorado voters will decide on approximately $1.2 billion of K-12 municipal issuance and mill levy overrides in 20 local elections, as well as Proposition CC, a statewide ballot measure that would end the cap on state tax revenue as required by the Taxpayer’s Bill of Rights (TABOR). TABOR is a constitutional limit to the amount of revenue that Colorado and local governments are able to retain and spend or save. Excess revenue collected over the TABOR limit must be refunded to taxpayers unless voters authorize retention of the excess amount.

Historically, the State has experienced difficulty passing funding for K-12 public schools and transportation projects. As a result, the State is requesting voters approve Proposition CC, which permits excess revenue to be distributed to public schools, higher education, roads, bridges and transit beginning in fiscal year 2019-20.This strategy has recently been successful at the local level, with Colorado cities exercising similar strategies to spend TABOR funds. If the measure passes, the increases in funding may benefit our holdings of public school, higher education and transportation bonds. However, TABOR funding is unpredictable and, therefore, difficult to budget. The Colorado Legislative Council Staff projects revenue exceeding the TABOR limit will be $428.5 million in 2019, $264.3 million in 2020 and $142.9 million in 2021.

Unlike at the State level, Colorado 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 $2.5 million to as much as $395 million. Depending upon voter sentiment, this election could potentially provide the Aquila Tax-Free Fund of Colorado with a broad opportunity to invest in a variety of projects as bonds are sold later this year and into 2020.


Tony Tanner talks Munis on Asset TV’s Fixed Income Masterclass


Tony Tanner, CFA®, SVP, of Aquila Investment Management and Lead Portfolio Manager of Aquila Tax-Free Trust of Arizona, recently participated in a Fixed Income Masterclass panel for Asset TV. Co-panelists were Christian Pariseault, Head of Fixed Income and Global Asset Allocation Institutional Portfolio Managers at Fidelity Investments, Colleen Denzler, investor at Smith Capital Investors, and Nolan Anderson, Fixed Income Portfolio Manager at Weitz Investment Management.


Tony discusses current opportunities presented by the inclusion of tax-exempt fixed income in a bond allocation, the localized nature of the municipal bond market, the continuing double tax-free advantage of single-state municipal investing, the primary risk and return characteristics of fixed income that investors should balance, and the benefits of leveraging professional management in accessing the municipal bond market.

In addition to Tony’s comments on the municipal market, Colleen, Nolan and Christian and Tony provide perspective on the global economic environment, current market volatility and conditions in the broader fixed income market.

The full program linked above provides CE Credit. 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.


2019 Aquila Tax-Free Trust of Arizona Annual Shareholder Meeting


Shareholders of Aquila Tax-Free Trust of Arizona are cordially invited to attend their Annual Shareholder Meeting on Wednesday, October 30, 2019 at 9:30 a.m. at the Arizona Biltmore Hotel, 2400 East Missouri Avenue, Phoenix, AZ 85016. Breakfast will be served prior to the meeting.

Attendees at the meeting will have the opportunity to visit with Fund Executives, Trustees and the Portfolio Manager.

This year we welcome special guest speaker Dennis L. Hoffman, Director of the L. William Seidman Research Institute, Director of the Office of the University Economist, and Professor of Economics at Arizona State University. Mr. Hoffman will speak on the evolution of Arizona’s 21st century economy.

Please plan to attend a meeting. We look forward to seeing you.


Cheaper by the Portfolio – The Mutual Fund Value Proposition


The art and practice of picking individual municipal bonds can be a lot like picking apples. Finding great values or a real gem is primarily a function of market conditions and variety. If one has a discerning taste in apples they are more likely to encounter a wider variety of in season, locally grown apples at a farmers market rather than at Costco. With municipals, it’s always easier to obtain value when there is wide variety of both the types of bonds available and sellers willing to trade.

In today’s municipal bond market, demand is strong (not much variety in sellers) and yields are compressed across the yield curve (not much variation among yields), making it more difficult to find a great individual bond value. Combining this with the shift in Fed policy that has moved from tightening to easing in a matter of months, interest rates have been driven lower with a magnitude and speed that has resulted in the market yields of some individual bonds falling much further than the distribution yield of a diversified mutual fund portfolio.

In a market like we are experiencing today, the most attractive municipal bond values may actually be found in established, well diversified municipal bond mutual fund portfolios. This applies to both establishing new exposure to municipal bonds in an asset allocation, and to reinvesting maturity proceeds or making additions to an existing fixed income portfolio.

In comparing the change in intermediate market yields of some individual bonds with the yields of Aquila Tax-Free Trust of Arizona (AZTYX) for example, there is now a substantially larger yield advantage in the Fund. After peaking the first week of November 2018, market yields of individual bonds across the intermediate yield curve have fallen dramatically.


while the SEC 30-Day yield of AZTYX has held up better (please read the Fund prospectus here):


This can be attributed to a couple factors. First, active portfolio management may enable a fund manager to better sustain the portfolio income and dividend of a mutual fund by capitalizing on the opportunities that fluctuating interest rates often present (sort of like having a personal shopper at the muni bond “farmers market”). Second, the market yield and price change of an individual bond is more sensitive to a change in market yields than the yield and price change for a diversified portfolio of bonds.

That is because the average maturity and duration of a portfolio of bonds is not the same as the actual maturity and duration of any one specific bond.
Read more “Cheaper by the Portfolio – The Mutual Fund Value Proposition”


2019 Hawaiian Tax-Free Trust Annual Shareholders Meeting


Shareholders of Hawaiian Tax-Free Trust are cordially invited to attend their Annual Shareholder Meeting on Wednesday, September 25, 2019 at 10:00 a.m. at the Ala Moana Hotel in Honolulu. A continental breakfast will be served prior to the meeting.

Those unable to attend the Honolulu meeting may be interested in attending the special outreach informational meeting in Maui. The meeting will take place at 10:30 a.m. on Tuesday, September 24, 2019 at the Maui Arts & Cultural Center. Lunch will be served at 11:30 a.m.

Attendees at all meetings will have the opportunity to visit with Trust Executives, Trustees, the Portfolio Managers and hear renowned Hawaii economist, Paul H. Brewbaker, Ph.D., Principal of TZ Economics, a Hawai’i economics consultancy. Mr. Brewbaker’s background is in research on the Hawaii economy and financial risk analytics. He has been affiliated with Bank of Hawaii for more than 25 years, concluding as its Chief Economist. Mr. Brewbaker will present an overview of the Hawaii and national economy.

We look forward to seeing you in either Honolulu or Maui.