A proposed initiative to raise new revenue for California's public school system would have a significant negative impact on the state's wine grape economy if the source of that new revenue is increased taxes on alcoholic beverages, according to Dale M. Heien, professor of agricultural economics at the University of California, Davis. "If passed, the end result of this surtax will be higher prices for consumers, lower prices to wineries, lower prices to growers for grapes, fewer acreage of wine grapes and less employment in the wine grape industry," said Heien at today's California State Senate hearing held at the Culinary Institute of America in St. Helena. "Profitability for both wineries and growers, already slender, will be further diminished," he said. Under this proposal, the average bottle of wine will increase in price by 13 percent. Studies have shown that for every one percent increase in the price of wine, quantity consumed will fall by .8 percent, according to Heien. The wine economist also pointed out that wine consumption in California will fall by nearly 10 million gallons -- the equivalent to a drop of 13,000 acres of wine grapes. Analysis of the "Public School Safety, Class Size Reduction, Classroom Technology and Student Fee Stabilization Act of 1996" shows that the initiative will result in a transfer of more than $200 million from the California wine economy to state government. The proposed tax increase would be levied solely on consumption in California. "The California wine economy is being asked to take a hit of $200 million out of total sales of just over $2 billion, or ten percent. The initiative will transfer the $200 million to education expenditures which are now $38 billion, or an increase of one-half of one percent," Heien said. "That means the California wine economy is being asked to contribute more than 20 times its fair share." In addition, this proposed tax increase would occur in the context of two other negative factors affecting the California wine economy, according to Heien. First is the financial impact of replanting large amounts of acreage that had to be removed due to phylloxera damage. The cost of replanting has been significant, and considerable debt has been incurred and financial resources strained in order to achieve this replanting. Secondly, the wine industry was hit with a federal tax increase in 1991 that raised wine prices 13 percent after a tax of over $1 per gallon was imposed. "This tax was touted as a solution to the budget deficit, yet it and other tax increases tipped the economy into recession and resulted in a deficit which was larger after the tax than before it," said Heien. "The 1991 tax brought an increased emphasis by foreign countries to produce wine, and some California growers have already begun plantings in Mexico and South America," he said. "This new proposed initiative will only accelerate that growth and re-emphasize the image of California as a state with a hostile business environment."