The Seneca Nation of Indians has withheld nearly a quarter of a billion dollars in slots revenue from the state and three communities that host its casinos -- and Buffalo, Niagara Falls and Salamanca are starting to feel the pain.

The Senecas decided last August -- during the heat of state attempts to collect sales tax on cigarettes sold to non-Indians -- that they would stop paying what they had promised from casino slots revenue to the state and local governments.

To date, they have withheld $228 million from the state, including $57.2 million from the three communities that host the casinos -- amounts that continue to grow every time a gambler pulls the lever on a Seneca slot machine.

Seneca leaders argue they are withholding the money because the state reneged on promises of gambling exclusivity by allowing slot machines to be placed at horse-racing tracks in Hamburg, Batavia and the Finger Lakes, and because the state is overcharging the Seneca Nation to regulate the tribe's three casinos.

The loss of that money -- used in recent years to plug the state budget and pay for local services -- is beginning to show.

The City of Salamanca has laid off 49 workers, including five firefighters, and trimmed more than half the police force.

A Niagara County tourism agency has slashed its budget and cut 20 percent of its work force.

And Buffalo will have to make up more than $1 million in withheld revenue.
"The New York State-Seneca relationship is killing us," said Salamanca Mayor Jeffery Pond.

The dispute over whether the state has violated its gaming compact with the Senecas is one of eight "challenges" new Seneca President Robert Odawi Porter listed in a January letter to Gov. Andrew M. Cuomo. Those challenges include violation of the nation's "treaty-protected rights" and attempts to tax cigarette sales to non-Indians.
"It was never our intention to bring any harm to the local governments and the other beneficiaries of the local share," Porter said. "They're a casualty of the state's misconduct in violating our compact."

The state sought arbitration late last year to determine if the Senecas have breached their 2002 compact by not paying the money.

"The state intends to collect all monies owed," said John Milgrim, a Cuomo spokesman.
As the fight continues, the Senecas appear to be on a financial roll. The Seneca Gaming Corp. took in $152 million in its second quarter of last year and reported $24.1 million in profits. It then stopped providing detailed financial reports to the Securities and Exchange Commission after refinancing its debt.

The Senecas have offered to make payments directly to local communities, but the state has not agreed to that arrangement.

With no clear end to the dispute in sight, and as bills come due, local governments that receive a cut of slots revenue are making hard choices.

"It's no longer pinching us," said John Percy, president and chief executive officer of the Niagara Tourism and Convention Corp. "It's squeezing us."

The Niagara tourism agency held off as long as it could. But late last month, with no word on when the casino payments might start again, its directors voted to scale back marketing campaigns by 35 percent. The agency also laid off two employees and cut hours for two others in its small work force.

Salamanca has taken even more drastic measures. With about 40 percent of expected revenue on hold, the city laid off the 49 employees last fall.

"It's the toughest situation I've ever faced," Pond said. "It's just not fair to us. We're being used in the middle of this game with the Seneca Nation and New York State."
Buffalo has received about $2.6 million in casino revenue since the Seneca Buffalo Creek Casino opened in July 2007 and uses the money for general expenses that will have to be covered some other way, said Michael DeGeorge, spokesman for Mayor Byron W. Brown.
As part of t

he Seneca gaming compact, the nation turns over 25 percent of the "net drop" into its slot machines to the state, which in turn channels 25 percent of that amount to localities where the casinos were built. The local amounts are tied to gambling volume in each community. The Niagara Falls area gets the most, then Salamanca, then Buffalo.
Since it opened its first casino in Niagara Falls on Dec. 31, 2002, the Seneca Nation has paid $471.4 million to the state, according to numbers provided by the state Division of Budget. In exchange, the Senecas get exclusive rights to operate slot machines and certain types of gambling devices in Western New York.

The state has kept the bulk of that money, funneling $353.3 million into the state budget. In turn, the state has paid about $118 million to the three communities that host casinos.
State law divvies up casino revenue in Niagara County to a half dozen entities, which have used the money primarily for capital projects that include a new court and police building in Niagara Falls and a new terminal at Niagara Falls International Airport.
With the expectation that slots revenue would continue to flow at least until the compact expired in 2016, several of those entities borrowed money based on the future payments. With casino payments on hold, they could have to tap other revenue sources to pay back bonds.

Niagara Falls Memorial Medical Center, for instance, last year completed a $6.9 million new behavioral health and wellness center that replaced a 40-year-old psychiatric unit. Bond payments on the project are scheduled to be paid back with the hospital's annual share of casino funds. The next payment is due in two months. May.
"It will become a real concern for us come May, for sure," said hospital spokesman Patrick Bradley.

Niagara Falls has received the largest share of local casino revenue to date and has used the money for a long list of projects -- from street repair to economic development to the construction of a new courthouse. Falls officials may have to put projects on hold and find other ways to pay back debt on earlier projects if the money continues to be withheld.
Falls Mayor Paul A. Dyster said the message from the governor's staff has been that they are working on the issue and keeping "all of our options open."
"There's an understanding in the governor's office that impacts are being felt already and are going to accumulate," Dyster said.

Salamanca's mayor said he is working with the state to find a solution, but in the meantime any contract negotiations are on hold.

He worries that even basic services -- like plowing the streets at night -- would have to go if the city has to make any more cuts.

"It's really put us in a tough situation," Pond said.

Money in play
The state has received $353.3 million in casino slots revue from the Senecas and has given the following to host communities:
Niagara Falls and entities in Niagara County: $84.4 million
Salamanca and entities in Cattaraugus County: $31 million
City of Buffalo: $2.6 million
Money the Senecas have so far withheld: $228 million
State: $228 million
Host communities: $57.2 million
Source: State Division of Budget
 
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