By Lenn Thompson, Founder and Editor

It's not news to anyone in New York that the state government is running under a serious deficit. It's all over the news and even before it was being talked about so much, many knew and feared that this day would come. Now, Governor Paterson is trying to rectify the situation with his proposed 2009 budget. Economic times are tough, seemingly, every where, with everybody.

This isn't a political or economic blog, so I'm not going to write today about the entire budget and the decisions Governor Paterson has made. But there are a couple related to the New York wine industry that I do feel at least somewhat qualified to discuss.

Briefly, Paterson is proposing an increase in the per gallon excise tax from nearly 19 cents to 51 cents, a pretty hefty hike. The governor's 2009-10 budget plan also calls for elimination of New York Wine and Grape Foundation (NYWGF)  funding. The NYWGF gets $1 million from the
executive budget and $1.8 million from the Legislature. It matches the
executive grant with private fund raising, for a total budget of $3.8.

So what would those changes mean if they are implemented? (Remember that this is a proposed budget and that nothing is finalized.)

This topic is like the cliched onion, there are many layers and depending on how many layers you peel, you may or may not cry.

I emailed with Jim Trezise, the president of the NYWGF, last week to learn more about what he thinks the impact might be. Apparently, they'll be able to support and fund any ongoing projects through the end of their current fiscal year, March 31, but that beyond that date, they'll have to cut "everything" including roughly $1 million of research by Cornell and the Cooperative Extension each year, the wine trail and regional branding programs, the New York City initiatives, the public television series, and "everything else."

Saying it even more bluntly, he told me "Our programs are based on the availability of matching funds from the State, plus in some years additional funding for more programs, so the end of state funding would mean the end of the programs."

Again, I'm no economist, but it's hard to understand how these cuts make any sense for the state. An independently run study in 2005 showed that the New York wine industry generated $3.4 billion for the state's economy. Given that, and the proposed increase in the excise tax, the less than $3 million the NYWGF usually gets doesn't seem like much. As they say, you need to spend money to make money, and that seems like a pretty good investment to me. It's an especially good investment when you consider that wine is one of the only agricultural industries in the state still growing. In that sense, it just seems silly.

But, as I talked with several winery owners and winemakers across the state over the last few days, I found it interesting just how mixed the reaction is to the possible elimination of the NYWGF.

Several winery owners in the Finger Lakes in particular seem worried that without the foundation driving promotions, they are going to lose customers, sell less wine and have tougher economic times. I'm not so sure that it's possible to prove (or disprove) that one has to do with the other.It's not a simple "if, then" scenario.

The owners I spoke to point to increased tasting room visitors over the past several years as an example of the NYWGF's importance in the region. Do we know for sure that the NYWGF is directly responsible for the increased food traffic? Is it possible that increased interest in wine across the country has an impact? I'm not downplaying or discounting the work the NYWGF does, but is there any hard evidence to support the contention that without the foundation, New York wineries are going to fail?

Charles Massoud, co-owner of Paumanok Vineyards here on the North Fork may have said it best last week "The coming year is going to be challenging no matter what business we
are talking about. And if the industry should experience any difficulty
will it blame it on such a possible fate for these organizations or
will we blame it on the economy?"

Echoing the comments of many, Ted Marks, owner of Atwater Estate on Seneca Lake called the foundation "the main promotional source for our industry" but I'm left wondering if this is the right model to begin with.  Should individual wineries depends heavily on an organization like this to promote themselves? I don't think so, and I commend owners like Art Hunt of Hunt Country Vineyards who told me that they are "making plans to be out on the road significantly more than in past years, visiting accounts and working with our distributor reps. We are planning to do more to bring consumers back." Regardless of what happens with the NYWGF, other wineries will need to do the same.

Massoud thinks that "For many wineries that have distanced themselves as to their
sales and marketing, the effects may not be noticed. There are probably
some wineries that used such organizations as a crutch, and therefore
they may now have an opportunity to stand up and move forward. Perhaps we should go it alone for a while to discover what importance these organizations may really have."

Some have also suggested that this proposed budget cut would mean the end of some wineries. I have to ask again, is it because the NYWGF won't be around or is it just the economy and the tight credit situation? I'd argue that we're going to see some wineries go under regardless. Just like in every other industry, small business owners are struggling to stay afloat right now.

Surprisingly few that I spoke to mentioned what might be the biggest problem with the proposed budget cuts — the loss of research dollars. That, to me anyway, is the bigger long-term issue. Without the research being done at Cornell and the Cooperative Extension, the industry might stagnate a bit. Research is important, even if it doesn't directly lead to dollars. And let's not forget about all of the jobs that could be lost, at the research organizations and also at the state's individual wine trails, which get some of their funding from the NYWGF. There are people involved here as well, let's not forget that side of this.

From an outsider's perspective, I think this might be a wake-up call, both for the foundation and for its membder wineries. The NYWGF is far from perfect and there's been a dire lack of innovation in its programs — at least in the marketing and promotions arena.

I think that the NYWGF will find a way to survive this. Trezise is very good at lobbying the folks in Albany and I think he'll be able to secure at least some level of funding to keep the foundation alive. This is also an opportunity for the foundation to become much less reliant on state funding going forward. There apparently had been talk of a voluntary increase in the excise tax that would fund programs. It's hard to know if wineries will want to do that on top of the current proposed increase, but that would be one way to move towards becoming self-sufficient. Or, it's possible that Trezise will decide to focus on the International Riesling Foundation and let the NYWGF fade away. Only he can speak to his plans.

This is also an opportunity for the NYWGF (as well as member wineries) to re-think how they operate. To survive in this tight economy, you simply can't rely on the same old programs. Innovation and the leveraging of new technology is a must. This might force everyone in the industry to improve how they promote and market themselves. In that sense, a little short-term pain might lead to better days in the long run.

This is a complex situation and I'm sure some of what I've said here will elicit some strong emotions and feedback.