Municipal Bond Funds

11/07/2018

The Essential Municipal Bond Market

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Anthony Tanner, CFA®, Senior Vice President and Portfolio Manager, Aquila Tax-Free Trust of Arizona

Seldom in the financial landscape do investors have greater ability to support and participate in their local and state economy than through investing in municipal bonds. Municipal bonds can offer individual investors a source of income that is generally exempt from Federal and state income taxes.

The municipal bond market provides more than just an avenue for investors to earn tax-free income.   At the local level, it is a vital and core component of economic development.  Municipal bonds are the primary tool by which state and local governments implement public policy through spending on infrastructure projects, such as hospitals, schools, water and sewer systems, airports and other vital transportation projects.   Many of our region’s most visible and successful public works projects have been funded primarily through municipal bonds, including the Light Rail System, the Sky Harbor Airport expansion, and Arizona State University campus development.

In Arizona, our residents benefit from a dynamic and resilient local municipal bond market, as illustrated by the manner in which state and local governments weathered the great recession in 2007-2009. By the low point in that economic downturn, the Arizona economy had shed nearly 300,000 jobs as employment declined 11%, compared to 6% nationally.   Nevada was the only state with a deeper decline.  Throughout that time, Arizona’s credit rating declined minimally from an average of AA- to A+.

Arizona set a recent record for employment after surpassing its pre-recession peak in 2016, and its current credit ratings of AA by S&P and Aa2 by Moody’s1 are actually higher than prior to the outset of the recession. Read more “The Essential Municipal Bond Market” ›

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” ›

09/04/2018

2018 Aquila Tax-Free Trust of Arizona annual shareholder meetings

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Updated 10/30/18: Shareholders of Aquila Tax-Free Trust of Arizona are cordially invited to attend their Annual Shareholder Meeting on Wednesday, October 31, 2018 at 9:30 a.m. at the J.W. Marriott Scottsdale Camelback Inn Resort & Spa, Salons C-E, 5402 E. Lincoln Drive in Scottsdale, Arizona. Breakfast will be served prior to the meeting.

Those unable to attend the Scottsdale meeting may be interested in attending a special informational outreach meeting in Tucson at 10:00 a.m. on Tuesday, October 30, 2018. That meeting will take place at the Westin La Paloma, Aster Room, 3800 E. Sunrise Drive. A light breakfast will be served prior to the outreach meeting.

Attendees at both meetings will have the opportunity to visit with Fund Executives, Trustees and the Portfolio Managers.

Special guest speaker at the shareholder meeting in Scottsdale will be Arizona Deputy State Treasurer Mark Swenson. Mr. Swenson has held senior executive positions for elected officials in state government for 24 years including four State Treasurers, three Senate Presidents, and five Senate Majority Leaders. Prior to the Treasurer’s office, he served for more than 12 years as a Senior Policy Advisor at the Arizona State Senate, including four years in budget and tax policy.

The Phoenix Business Journal, on October 29, 2018,  published market observations from Aquila Tax-Free Trust of Arizona portfolio manager, Tony Tanner:  My View, Arizona continues to benefit from municipal bonds. In the opinion piece, Mr. Tanner discussed the ability of investors in Arizona municipal bonds to support and participate in their local and state economies, and in visible and successful public works projects which have been funded primarily through municipal bonds.

“When Arizona investors consider the high quality and demonstrated strength of the Arizona municipal bond market, these characteristics can provide them with added confidence in making municipal bond investments that are essential to furthering the economy and quality of life in Arizona”, Mr. Tanner said.

Please plan to attend a meeting. We look forward to seeing you in either Scottsdale or Tucson.

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.

08/02/2018

2018 Hawaiian Tax-Free Trust Annual Shareholder Meeting

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Shareholders of Hawaiian Tax-Free Trust are cordially invited to attend their Annual Shareholder Meeting on Wednesday, September 19, 2018 at 10:00 a.m. at the Ala Moana Hotel, Hibiscus Ballroom in Honolulu. Light refreshments will be served prior to the meeting.

Those unable to attend the Honolulu meeting may be interested in attending one of the special outreach informational meetings in Hilo and Kailua-Kona. The Hilo meeting will take place at 12:00 p.m. on Thursday, September 20, 2018 at the ‘Imiloa Astronomy Center of Hawaii in the Moanahoku Room. The Kailua-Kona meeting will be Friday, September 21, 2018 at 11:00 a.m. at King Kamehameha’s Kona Beach Hotel in Ballroom 3 & 4. Luncheon will be served following both outreach meetings.

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, Hilo, or Kailua-Kona.

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.