City leaders will discuss Tuesday whether to file suit against the Pechanga Band of Luiseno Indians in an attempt to force the tribe to fork over millions of dollars the city says it is owed for costs associated with a voter-approved expansion of the tribe's gaming operations.

The decision on whether to sue will be made by the Temecula City Council at Tuesday's meeting, scheduled to start at 7 p.m. in City Hall, 43200 Business Park Drive.

The council also could authorize finance employees to transfer $2 million from the city's reserve fund to offset the revenue shortfall caused by what the city is referring to as the tribe's "failure to pay" a $2 million payment June 30.

The city and the tribe signed an agreement earlier this year that had the tribe paying $2 million annually for the next 21 years to offset the city's expenses associated with the recent addition of slot machines at the tribe's casino.

According to the city, the first payment was due June 30.

The tribe, however, has argued that the first payment is not due until the tribe has completed negotiations with the county.

In a statement issued Friday, tribal Chairman Mark Macarro repeated that argument, and called the city's threat of litigation "absurd."

"The agreement absolutely requires the tribe and the county to first reach a deal," he said.

City Attorney Peter Thorson, in his report for the council, does not dispute that the agreement signed in March is triggered after the tribe and the county broker a deal, but he said that because of the tribe's "failure" to complete its negotiations with the county, the city has no alternative but to sue to protect its rights related to an amended compact signed in 2006.

According to 2008's Proposition 94, a measure that changed how tribes pay to offset the local impacts associated with casino operations, Pechanga was required to negotiate separate agreements with the city and the county in exchange for a larger number of slot machines.

Previously, tribes paid into the state's Special Distribution Fund, a pot of money divvied up by the state and distributed to the counties and governmental agencies affected by Indian casinos.

In addition to the $2 million a year agreed upon earlier this year, the tribe committed to kicking in $10 million within five years for improvements to the Interstate 15-Temecula Parkway interchange, an offramp that is heavily congested during big events at the tribe's resort and casino.

In his report, Thorson said those improvements have been put in jeopardy by the tribe's inaction.

"That's ridiculous," tribe spokesman Jacob Mejia said, noting that the city admits in the same report that the $10 million isn't supposed to be paid until 2015.

Talking about the negotiations between the county and the tribe, Thorson said the two sides are hung up on $352,000.

The county, Thorson states in the report, has demanded $852,000 for the additional costs of the district attorney's office, the public defender's office and the Mental Health Department's gambling addiction program resulting from the expansion of the gaming center.

The tribe, Thorson said, has offered to pay the county $500,000 each year for these services.

He added that the two sides have not met to resolve their differences since July 13.

Macarro said in his statement Friday that the agreements between Pechanga, the city and the county were always intended to be interdependent.

"From day one of the negotiations, representatives of the city of Temecula recognized this principle; otherwise, it would not have approved a clause that explicitly recognized the requirement that the county component also be completed before the agreement takes effect," he said.

"The city's unwillingness to honor the spirit and letter of the agreement is jeopardizing the deal, especially given Pechanga's good-faith efforts and its longstanding record of honoring commitments," he said.

Macarro said that any hope of reaching an agreement in the near future rests in the hands of the council.

"They can continue down a reckless path of threatened litigation and uncertainty, or stop undermining our negotiations with the county," he said.

Call staff writer Aaron Claverie at 951-676-4315, ext. 2624.