Localities caught in casino-state crossfire

ALBANY -- Since the casino cash stopped flowing, Salamanca has laid off workers, Niagara Falls has cut back on cleanups, and county reserve funds have dried up in the North Country.

The struggling municipalities in western and northern New York are collateral damage in a high-stakes confrontation between the state and Indian tribes involving gambling dollars.

The Seneca and Mohawk tribes have for years withheld casino payments to the state, claiming that New York violated contracts with the tribes by allowing outside gambling in their exclusive territories. Consequently, the state stopped sending money -- more than $100 million so far -- to municipalities where Indian casinos operate.

Without their share of casino money, local governments are straining to provide basic services. And with no compromise in sight, arbitrators may have to resolve the dispute.

"Our piggy bank is empty now," said Niagara Falls Mayor Paul Dyster, whose city is out almost $60 million in casino payments.

The Seneca Nation of Indians, which operates casinos in Buffalo, Niagara Falls and Salamanca, stopped sending payments starting in 2009. They say the state violated the compact that gives the Seneca exclusive gambling rights west of the Finger Lakes when it allowed three western New York harness tracks to operate video lottery terminals.

Robert Odawi Porter, Seneca president, said about $400 million in withheld state payments have been placed in escrow. A quarter of the money would have gone to host cities like Buffalo and Niagara Falls. "We're not going to sit by idly while we're being cheated," he said.

The St. Regis Mohawks, who operate a casino on their land straddling the Canadian border, separately decided in October 2010 to stop making payments, citing slot machines operating on Indian territory elsewhere in northern New York. After two years, Franklin and St. Lawrence counties and four local towns are out $12 million.

The losses in casino revenue are a small part of the state's $132 billion budget, but are felt keenly in smaller municipalities struggling to balance their books.

Salamanca Mayor Jeffrey Pond said the roughly $5 million a year from the Senecas was about half the city budget. Salamanca laid off 49 people and has gotten by with a no-interest loan from the state. In Niagara Falls, Dyster said the city had to cut back on cleanup crews that fixed up vacant lots, and was not able to invest extra money to promote itself as a destination for weddings for same-sex couples after the state legalized gay marriage a year ago.

Leaders of both tribes cast the issue in terms of gambling and broken promises, though some observers believe the long-simmering resentment among Indians over the state's efforts to tax Indian cigarettes played a role as well. The dispute also intensified as the state considers a constitutional amendment to allow casinos on non-Indian land.