Municipal Bond Funds

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 9/12/18: 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.

Please plan to attend. 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. 

05/31/2018

Kentucky introduces new tax legislation

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The Kentucky Legislature made several tax law changes at the end of its 2018 session. House Bill 366 was passed on April 13th over the Governor’s veto and an additional bill, HB 487, became law on April 27th when Governor Bevin failed to either sign or veto the bill.

Some of the changes are retroactive to January 1, 2018 including:

  • Replace the current six-bracket individual income tax which ranges from 2% to 6% with a flat 5% tax;
  • Replace the current three-bracket corporate income tax with a 5% flat rate;
  • Remove most deductions and repeal the personal exemption credit;
  • Decrease the amount of pension income excluded from income tax to $31,110.

Other changes detailed in the 378-page bill will be effective July 1, 2018 such as, additional services in the sales tax base, increases to the cigarette tax and new tire fee. The full bill can be accessed here.

While the new 5% flat tax for individual taxpayers is a reduction from the prior top rate of 6%, many may still find tax-exempt municipal bonds to be a beneficial investment. Using the current three top federal tax brackets along with the 2018 Kentucky state income tax rate and the Net Investment Income Tax, the chart at right illustrates what a taxable investment would have to yield to match a 2% tax-free investment.

For more information, please consult your tax professional. A full report on taxable equivalent yields using the new tax is available here.

The Net Investment Income tax is a 3.8% tax established by the Patient Protection and Affordable Care Act (PPACA) that applies to the lesser of (1) net investment income or (2) the excess of a taxpayer’s modified adjusted gross income (MAGI) in excess of an applicable threshold amount. For more information, please consult your professional tax advisor.