January 2016 Cover Story: Economic Outlook

Slow and steady
growth wins the race

OUTLOOK 2016 / MILITARY: A soldier salutes during the presentation of the colors last year in an activation ceremony for the 10th Mountain Division Divarty. As the post avoided major cuts in 2015, Fort Drum officials remain positive that 2016 will be a healthy year for one of region’s top economic sectors. Photo by Amanda Morrison, NNY Business.

OUTLOOK 2016 / MILITARY: A soldier salutes during the presentation of the colors last year in an activation ceremony for the 10th Mountain Division Divarty. As the post avoided major cuts in 2015, Fort Drum officials remain positive that 2016 will be a healthy year for one of region’s top economic sectors. Photo by Amanda Morrison, NNY Business.

Despite a few challenges, experts say the region is on pace for a positive year in 2016. Six sectors of the north country’s economy are ripe with opportunities for growth.

By Karee Magee, NNY Business

A grim fate cast a pall over the north country in early 2015, as federal budget sequestration threatened to cut up to 16,000 personnel from Fort Drum in an effort by the army to trim its active duty force from 490,000 to 450,000 by fiscal year 2017.

Relief flooded the region on July 9 when Fort Drum officials announced in a news release that the post would lose only 28 soldiers.

What appeared to be a catastrophic time for the north country evolved into a year of positive growth in the region, said Donald C. Alexander, executive director of Jefferson County Economic Development.

“It’s going to be a mixed year,” he said of the region’s outlook for 2016.

Health care, manufacturing and tourism saw an uptick in 2015, which is expected to continue into the year ahead. Certain sectors of the region’s economy will see more growth than others, though, Mr. Alexander said.

Agriculture, the dairy industry in particular, will see a tough year as prices farmers are paid for milk continue to fall into 2016 and an increase in the minimum wage is introduced.

Concerns still remain for the growing sectors of the economy as well, Mr. Alexander said.

“Divide a piece of paper. There are enough bad points to be of concern to me, but it will be OK,” he said.

Despite some challenges the economy faces, though, Elle Hanna, CenterState CEO, director of communications and media relations said she expects Northern New York’s economy to continue in a positive direction.

“It’s not dramatic. (The region) is moving in a positive direction,” Ms. Hanna said. “We’re going to see a steady growth. That will probably bear out in the next several years.”

Military

After seeing minimal cuts in 2015, Fort Drum remains a stable part of the region’s economy despite seeing a moderate decrease in its economic impact from $1.3 billion in 2014 to $1.22 billion.

The decrease, mostly a drop in military payroll, according to Col. Bryan J. Laske, Fort Drum garrison commander, was small compared to the $1.6 billion full cuts would have cost the north country.

“It’ll be a little less overall, but won’t impact jobs created in a significant way,” said Carl A. McLaughlin, executive director of Fort Drum Regional Liaison Organization. “The good news is it’s stabilizing at this point.”

Although Fort Drum isn’t completely out of the woods, Mr. McLaughlin said the region can expect it to remain stable for the next two years while sequestration for defense purposes is postponed.

“We all breathed a sigh of relief,” Mr. Alexander said. “There is no way to assess how much damage would have been done.”

The region’s work isn’t over though, Col. Laske said.

“We cannot stop talking about our value to the Army here at Fort Drum,” he said. “The Army is very open in saying that further reductions due to sequestration will impact every state where soldiers are currently stationed.”

The National Commission on the Future of the Army, formed to conduct a comprehensive study on the structure of the army will unveil its recommendations on a wide range of issues, including the size of the army, on Jan. 28.

“Eventually they need to realize there’s a limit to how much you can downsize and still be ready to be utilized,” Mr. McLaughlin said.

Meanwhile, Fort Drum is looking to more immediate plans.

Col. Laske said payroll is expected to remain stable during the next fiscal year, which represents 85 percent of Fort Drum’s total economic impact, but military construction will continue on its downward trend.

“We’ve been talking about it for the last couple of years,” he said. “Major construction projects on Fort Drum are drying up quickly.”

There will be no more projects in the FY19-FY21 military construction programs, Col. Laske said, though construction is ongoing on the Grey Eagle Hangar and work on a new noncommissioned officer academy will begin this summer.

The slowdown in construction, though, isn’t a negative, Col. Laske said.
“Our growth over the last decade has slowed, and it’s tough on one hand because it was such a boon for the economy, but on the other hand it’s proof that we’re where we need to be,” he said.

Despite looking at more deployments this spring, Mr. Laske said further deployments will be spread out evenly in 2016 and the vast majority of the division will be home by Christmas, including soldiers presently in Iraq, Afghanistan, Kuwait, South Korea and soldiers serving in Africa.

“While it’s hard to speculate exactly how our soldiers coming home will affect the local economy, I think we’re safe in saying it will be a good news story,” he said.

OUTLOOK 2016 / HEALTH CARE: The New York State Delivery System Reform Incentive Program begins its second year in March, which will bring changes to the north country’s health care system that take aim at improving patient outcomes while focusing on prevention and cutting hospital stays. Photo by Justin Sorensen, NNY Business.

OUTLOOK 2016 / HEALTH CARE: The New York State Delivery System Reform Incentive Program begins its second year in March, which will bring changes to the north country’s health care system that take aim at improving patient outcomes while focusing on prevention and cutting hospital stays. Photo by Justin Sorensen, NNY Business.

Health care

Over the next four years, regional health care will be in the midst of major expansions and investment as the five-year New York State Delivery System Reform Incentive Program begins its second year in March.

The program aims to restructure the health care system by reinvesting in the Medicaid program with the primary goal of reducing hospital visits by 25 percent.

“We’re moving from a health care system to a system for health,” said Denise K. Young, executive director of the Watertown-based Fort Drum Regional Health Planning Organization.

Up to $6.42 billion were allocated to DSRIP, $78 million of which was awarded to the North Country Initiative Performing Provider System, made up of Watertown’s Samaritan Medical Center, Carthage Area Hospital, River Hospital, Alexandria Bay, Clifton-Fine Hospital, Star Lake, Claxton-Hepburn Medical Center, Ogdensburg and Massena Memorial Hospital, as well as 500 independent practices, clinics, schools and public health agencies.

According to Ms. Young, the program seeks to grow the health care system through collaboration to improve the quality of patient experience, increase community involvement, and decrease cost.

“If we can do those three things, we’ll be in great shape,” she said.
In order to do that and cut hospital visits, the new system emphasizes preventative care.

“You pay attention to prevention, you cut down hospital visits,” said Ben Moore III, CEO of River Hospital. “If this works there will be less demand for the acute care services. They’re much more expensive than preventing illness.”

The group will focus on three of the five target areas the DSRIP system seeks to improve: mental health and substance abuse, chronic disease and maternal and child health.

Ms. Young said initiatives to facilitate this include creating more outpatient services that are conveniently located for those with chronic diseases like diabetes, as well as using telemedicine at hospitals and facilities like Lewis County General Hospital to contact specialists who aren’t available in the region.

“It’s a great way to increase access to care that we don’t have,” she said.
The Lewis County hospital is also using DSRIP money to build an assisted living facility behind the hospital, move the Copenhagen Health Center into a portion of Copenhagen Central School, upgrade the surgical suite, and acquire a 3D mammography unit that is unique to the north country.

River Hospital is planning a $14 million project to build a three-story addition to its Fuller Street Building that will offer outpatient mental health services and primary care in the same place to better treat the whole patient.

“Right now they’re all scattered,” Mr. Moore said. “It will be much more efficient for the patients.”

Ms. Young said that part of the North Country Initiative’s plan focuses on education.

The CARE Coordination program partners the North Country Initiative with FDRHPO, Jefferson Community College and SUNY Canton to train present care workers for the changing health care system.

The first program ended in December with 30 participants. The second starts in the spring.

Despite a number of projects underway, the program has a long way to go, according to David B. Acker, CEO of Canton-Potsdam Hospital, which is part of another healthcare group participating in DSRIP along with Gouverneur Hospital.

“There’s been a lot of work done,” he said. “Mainly getting organized is the biggest thing we’re trying to do. There is a lot DSRIP is trying to accomplish.”

Canton-Potsdam Hospital is focusing its DSRIP projects on outpatient care, prevention and education, including improving its transitional care team.

The transitional care team, Mr. Acker said, ensures people who are at high risk of repeat hospital visits get the outpatient care and education they need to avoid future visits.

As the DSRIP program moves toward its second year, Mr. Acker said it’s still too soon to know if it will accomplish everything it set out to or how it will fully affect the north country.

“It’s a bold agenda, but it’s going to be difficult,” he said. “It’s very resource intense.”

PLACEMENT INSTRUCTIONS JUSTIN SORENSEN / WATERTOWN DAILY TIMES KICKER OUTLOOK 2016 / MANUFACTURING: A New York Air Brake special process operator cleans a casted brake control valve machine at the Watertown facility in this 2011 file photo. New York Air Brake’s planned $3.6 million expansion that will house an engineering test lab is among the many projects moving forward this year. Photo by Justin Sorensen, NNY Business

OUTLOOK 2016 / MANUFACTURING: A New York Air Brake special process operator cleans a casted brake control valve machine at the Watertown facility in this 2011 file photo. New York Air Brake’s planned $3.6 million expansion that will house an engineering test lab is among the many projects moving forward this year. Photo by Justin Sorensen, NNY Business

Manufacturing

The north country experienced a manufacturing boom throughout 2015 with a number of projects and expansions still in the works to bring more jobs to the region.

Despite laying off 20 salaried workers and 15 hourly workers last fall, New York Air Brake’s planned $3.6 million expansion that will house an engineering test lab is among the many projects moving forward in 2016.

Cuts were due to an expected decline in demand for the company’s brake systems over the next three years, according to a Watertown Daily Times report.

Air Brake is allocating $2 million to build the addition. The remaining $1.6 million will go toward product testing equipment.

St. Lawrence County has seen a large number of companies expanding in the region, including ACCO Brands Inc., which produces office products, and DelFasko Corp., producer of coating thickness gauges and inspection instruments.

Expansion projects continue at Purine Pharma in Massena and the Canton Corning plant in DeKalb.

Maxam North America, a subsidiary of Maxam Civil Explosives, opened its new location in Ogdensburg in September. The plant will initially employee three people, according to a Times article, but the workforce may grow depending on the success of the facility.

According to CenterState’s Ms. Hanna, having a large number of smaller manufacturing companies expanding in the north country is a huge benefit because the region will not be solely reliant on one major employer in that sector.

“The shift that happened in the last few decades was more small and medium manufacturers,” she said. “That means the economy is more nimble. If one of them was to go the economy would not be crippled.”

St. Lawrence County is still largely dependent on Alcoa as a major employer, which employs about 750 people.

The proposed closure of the Massena East smelter and idling of the Massena West smelter in November would have cost the region 487 jobs.

That plan was postponed in December for the next 3½ years due to a deal with Empire State Development after approving capitol grants of up to $20.6 million.

The impact of larger companies on the region isn’t the only issue manufacturing faces in the north country, though, Ms. Hanna said.

Manufacturers are facing a gap between jobs that exist and the skillset needed by those seeking those jobs.

“The people looking for those jobs do not have the skillset that’s needed,” Ms. Hanna said. “There’s a disconnect.”

The problem is leaving jobs in manufacturing companies unfilled.

CenterState developed the Work Train program in the Syracuse area in 2014 to help create workforce development opportunities for low-income residents. The program aids employers in specific industries to address employment needs and develop strategies to engage local training with education partners.

Though the program started in Onondaga County, Ms. Hanna said CenterState CEO hopes to include the other counties it serves.

OUTLOOK 2016 / HOUSING AND DEVELOPMENT: An influx of new rental properties in recent years has helped to fuel a renters’ market in Jefferson County that experts say will lead to more vacancies in smaller buildings and falling rent prices. Despite the increase in supply, the housing market remains stable.  Photo by Amanda Morrison, NNY Business.

OUTLOOK 2016 / HOUSING AND DEVELOPMENT: An influx of new rental properties in recent years has helped to fuel a renters’ market in Jefferson County that experts say will lead to more vacancies in smaller buildings and falling rent prices. Despite the increase in supply, the housing market remains stable. Photo by Amanda Morrison, NNY Business.

Housing and Development

As of last March, 2,082 new rentals had been created within a 30-mile radius of Fort Drum four years after the housing crisis forced a scramble of development in Jefferson County.

That number doubled the 1,035 units that local agencies recommended, according to a Times article, but now the situation has changed.

“The housing market is a little overbuilt at this point,” said Brian Murray, real estate developer and CEO of Washington Street Properties, Watertown. “The city is going to face a challenge with a higher vacancy rate in the housing market within the city boundaries.”

The housing peak is expected to cause a series of issues in the community including stagnant development in that sector, an overabundance of larger high-end apartments while there are fewer studios, pressure on older homes and properties to compete, and a decrease in home sales due to the increased options.

“We’re going to face challenges, but they’re not insurmountable,” Mr. Murray said.

Despite the concerns a housing glut brings, it also presents a number of positives, Mr. Murray said.

More rental housing makes the city more affordable and it raises the standard of the properties if landlords have to compete, he said.

According to JCED’s Mr. Alexander, another benefit is that vacancies stabilize the housing economy and attracts more people and new companies.

“As a consumer you have more choices,” he said. “That’s important when we go to attract companies to our area. It’s not a comfortable place if we don’t have choices.”

The slowdown, though, has not stopped housing development completely. Washington Street Properties’ Arsenal Apartments opened in the spring, offering 44 studio, one-bedroom and two-bedroom apartments and with the opening of the Autumn Ridge townhouse complex off County Route 202, Morgan Management, Pittsford, began working on a sister development across the street that calls for a 359-unit townhouse complex.

Washington Street Properties is also continuing work on its Washington Manor Apartments, which will include 28 high-end apartments with a mixture of studios and two-bedrooms.

Despite the decrease in development in the housing industry and at Fort Drum, commercial real estate continues to perform well.

Tree clearing and site preparation began in December at the Watertown International Airport for a new business park proposed by Jefferson County Economic Development, but construction won’t start in 2016 until planning efforts for infrastructure and access roads have been completed.

Renovations continue at the Lincoln Building on Watertown’s Public Square, owned by Washington Street Properties, focusing on finishing retail space and the heating and sprinkling systems. The building is expected to be ready for occupancy in May.

COR Development, Fayetteville, is set to demolish five vacant houses within four to six weeks near the site of its Mercy project, former home of Mercy Hospital and the Madonna Home. The $65 million to $70 million project will be turned into rental housing and commercial space.

According to Mr. Murray, there is a lot of opportunity in the downtown area in the coming year because of a national trend that favors migration into city centers and urban areas.

“It might be time to develop a strategy to promote economic development in the downtown areas,” he said. “There is a lot of space available and that gives companies options to relocate. It could end up being a pivotal year for future years.”

OUTLOOK 2016 / AGRICULTURE: Gary Davis, co-owner of Bella-Brooke Vineyards, Hammond, talks about the grapevines at his vineyard. The outlook for niche agricultural products and farm and craft beverages is positive for 2016 while dairy farmers will see a challenging year a smilk prices remain low. Photo by Jason Hunter, NNY Business.

OUTLOOK 2016 / AGRICULTURE: Gary Davis, co-owner of Bella-Brooke Vineyards, Hammond, talks about the grapevines at his vineyard. The outlook for niche agricultural products and farm and craft beverages is positive for 2016 while dairy farmers will see a challenging year a smilk prices remain low. Photo by Jason Hunter, NNY Business.

Agriculture

The north country’s dairy industry hit a low point in 2015 after dairy farms substantially increased production to take advantage of high milk prices and consumer demand in foreign countries.

As demand fell this past year in countries like China, which import north country milk products, it left an oversupply of milk, dropping milk prices by 28.6 percent from November 2014.

“The industry has become a global industry and we were able to take advantage of global demand for milk, but it catches up and drives domestic prices down,” said Jay M. Matteson, Jefferson County Economic Development agricultural coordinator.

The decrease in global demand for milk is combining with a domestic drop in fluid milk consumption, which has fallen by 4 to 5 percent per year, Mr. Matteson said.

“People aren’t drinking milk the way they used to,” he said.

The drop wasn’t unexpected, though, according to Ronald C. Robbins, owner of North Harbor Dairy in Sackets Harbor.

“We knew we would see some softening of prices in 2015, but the farms are beginning to feel the pain of lower prices,” he said.

Milk prices are expected to remain low for much of 2016, stalling investments and forcing many farms to operate at a loss if their reserves from 2014 have dried up.

“It’s going to be really important for farms to focus on fundamentals to maximize production and do what they can to control costs,” Mr. Robbins said. “We’ll ricochet back pretty quickly.”

The dairy industry, though, is facing another concern with an increase of the state minimum wage to $9, which took effect on New Year’s Day, and the proposal by Gov. Andrew M. Cuomo to increase the minimum wage again to $15 in three years.

The governor is pushing for his proposal to be enacted in 2016.

“It’s not so much the milk price anymore,” Mr. Robbins said. “The costs of doing business here have become a bigger concern. A $15 minimum wage or a rising minimum wage would equate to $22 out of our pocket every paycheck.”

If Mr. Cuomo’s proposal takes place, the total wage increase would equal $150,020 for six employees, according to Mr. Matteson.

“That would cause us to seriously consider adjusting our business plan,” Mr. Robbins said. “Some of the bigger farms like us will find ways to survive, but it’s the medium-sized operations that really going to hurt.”

Mr. Robbins said that the wage increase would make growth impossible and farms need to grow to stay ahead of fixed costs.

The increase would also cost jobs, Mr. Matteson said, with smaller farms turning to robotic milking systems, which come with a one-time cost of $250,000.

The most promising parts of the agriculture sector in the year ahead are food processing and niche products.

Mr. Matteson is working to develop plans to build a meat processing plant in Jefferson County that could serve as the anchor for an agricultural park.

“We’re seeing a lot of interest in local food consumption,” Mr. Matteson said. “People want those proteins coming from as local a community as possible.”

Mr. Matteson said a meat processing plant could divert some of the trailers carrying cattle from Canada and the north county to Pennsylvania to a local facility.

“That’s a market that we’re missing,” he said. “If we could provide a meat processing plant here, we may be able to capture some of that livestock.”

Building the plant hit a roadblock last year when Car-Freshner Corp. threatened to move its headquarters if the facility was built at the Jefferson County Corporate Park off outer Coffeen Street because the company’s counsel claimed odor from a meat plant would be detrimental to Car-Freshner, which develops fragrances for its air fresheners, according to a Times article.

Developer Michael E. Lundy, Carthage, was awarded a $50,000 federal grant to assess the feasibility of building the plant, and Mr. Matteson said those involved are looking at two new sites.

“It was a setback, but I’m still optimistic that we can locate a USDA-certified meat processing plant in Jefferson County,” Mr. Matteson said.
One bright spot for the north country as it heads into 2016, is the rise in niche agricultural products.

The number of breweries, wineries and distilleries has increased in Jefferson County to 14 at the end of last year from just two wineries in 2004.

“That’s significant,” Mr. Matteson said. “Each becomes a marketplace for local products.

Homestead Heritage Cheese, part of the certified organic dairy farm Homestead Fields, started producing organic cheese in LaFargeville last fall.

The 130-cow, 700-acre farm is presently only making cheese curd, but plans to expand in the spring include cheddar and possibly blue cheese production.

Niche agriculture businesses are also experimenting with different and regionally unique products, according to Mr. Matteson, including infusing honey with different flavors, similar to what the Spicy Wench, Watertown, does with its pepper jams.

Clayton’s Coyote Moon began marketing wine in a can, available in packs of four 250-mililiter cans, while wineries are experimenting with new grapes, called cold-hardy hybrids and frigid picking to produce sweet wine.

“All of those niche products are very important to help our agriculture industry to be strong and grow,” Mr. Matteson said.

OUTLOOK 2016 / TOURISM: Seasonal business owners attribute Clayton’s 1000 Island Harbor Hotel, seen here at sunset, with boosting tourism in the area. The regional tourism outlook for 2016 is positive. Photo by Amanda Morrison, NNY Business.

OUTLOOK 2016 / TOURISM: Seasonal business owners attribute Clayton’s 1000 Island Harbor Hotel, seen here at sunset, with boosting tourism in the area. The regional tourism outlook for 2016 is positive. Photo by Amanda Morrison, NNY Business.

Tourism

A recent survey from the 1000 Islands International Tourism Council identified the low Canadian exchange rate as a dampening effect on the north country’s tourism sector last year.

The value of the Canadian dollar has consistently fallen since August and is now trading at 72 cents U.S.

According to Gary S. DeYoung, executive director of the 1000 Islands International Tourism Council, this has caused wer Canadian to cross the border for vacations, decreasing business for restaurants, retailers and hotels.

At the same time, though, Mr. DeYoung reported a positive tourism season in 2015 and expects to see another this year.

“This year we’ve got a pretty good response with this being a better than average year,” he said. “My gut is that our business from the U.S. side was probably stronger this year.”

In place of fewer Canadians traveling to the region, a strong U.S. dollar has increased American travel domestically. Other positive factors included favorable weather, low gas prices, a stronger economy and stable water levels on the St. Lawrence River and Lake Ontario, Mr. DeYoung said.

“Things are fairly stable,” Mr. DeYoung said. “As long as the economy stays on the same direction we should see a pretty good year.”

Growth of sustainable and recreational tourism in the region was another factor in the strength of the tourism industry.

Northern New York is placing a large emphasis on this type of tourism, in particular for agri-tourism, parks and outdoor areas, and downtown projects.

The north country’s largest form of agri-tourism comes from its wineries, breweries and distilleries.

St. Lawrence Wine Trail opened in October, taking advantage of experience tourism rather than a singular destination. The trail features Black Lake’s Bella Brooke Winery in Morristown, Lisbon’s River Myst Winery and High Peaks Winery in Winthrop. It will also include restaurants, orchards and lodges.

The St. Lawrence Wine Trail joins 18 designated wine trails in the state, including the 1000 Islands Wine Trail in Jefferson County.

Three sisters, Brenda L. James, Danielle M. Durant and Elizabeth R. Sharpe, also launched a wine, brewery and distillery tour business in December for the St. Lawrence and Thousand Islands region.

Lady Slipper Wine Tours will offer guided bus tours to the local businesses, lasting six to eight hours with a maximum of four or five destinations.

An 18-month “I Love NY” marketing campaign that began in September will promote at least 13 craft beverage businesses in Jefferson County as part of a $182,000 Craft Beverage Industry Tourism Promotion Grant from Empire State Development.

The project is designed to spotlight the craft beverage industry in the county by using social media, online promotional videos, a promotional booklet and a 30-second television commercial to air this fall.

“That’s very sustainable stuff,” Mr. DeYoung said. “The No. 1 thing we can do is keep our product fresh.”

Other sustainable tourism projects include improvements to regional parks like the trailhead project at River Bend Park in West Carthage, which will include a new boat launch, dock, retaining wall, handicapped walkway and two additional parking areas.

Market Square Park in Sackets Harbor has also been considering adding a village-owned marina. The village was awarded a $40,000 state grant in August to study seven potential sites along the waterfront.

Three state parks in the Thousand Islands region received $4.6 million for improvement projects, including beautifying the beachfront and campgrounds of Wellesley Island and Grass Point state parks in Orleans, and for an accessible trail at the Wilson Hill Wildlife Management Area in Massena.

North country downtowns have also been making use of Main Street grants for restorations and improvements that will help to attract more visitors.

“There’s this kind of pushback to urban centers in the area,” Ms. Hanna said. “People want that sense of place, that sense of uniqueness.”

The village of Canton received $300,000 as part of its Main Street Grant to renovate buildings within the Main Street historical district and it received $47,500 to build upon the Canton Grasse Waterfront Revitalization Plan by updating the Comprehensive Land Use Plan and creating a marketing plan for the Grasse River Blueway.

Karee Magee is a magazine associate for NNY Magazines. Contact her at 661-2381 or kmagee@wdt.net.