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Construction on a permanent building for the Seneca Buffalo Creek Casino halted four years ago amid a slumping economy and a legal challenge that threatened to shut down the gambling hall.

Now, with steel beams removed from the site, construction has resumed, this time on a scaled-back, $130 million design that leaders of the Seneca Nation of Indians hope will be a better fit for the neighborhood when it opens in 15 months.

Little, however, has changed with respect to the uncertainty surrounding the site. The lawsuit remains unresolved, and the economy, while better, continues to struggle.

And a new challenge has been added to the mix: the potential for a statewide referendum to expand commercial gambling in New York.

"The best way to meet current competition and certainly to prepare for increased competition is to develop a facility and get ahead of the curve, ahead of the competition, build a facility that's really state-of-the-art," said Robert Mele, chairman of the Seneca Gaming Corp.

Seneca leaders gathered Wednesday to ceremoniously kick off construction on a one-story casino with 800 slot machines and 16 table games that eventually will replace the temporary blue gambling hall at the corner of Michigan Avenue and Perry Street.

The latest plan for the site has been scaled back significantly from the 22-story, $333 million casino hotel once imagined for the nine-acre property. Crews spent the spring and early summer tearing down the steel beams from the earlier project.

The re-emergence of construction crews on the site has done little to discourage the casino's opponents, who have sued the federal government over its decision to allow the Senecas to operate a casino in Buffalo.

"They can build all the buildings they want," said Joel Rose, co-chairman of Citizens Against Casino Gambling in Erie County. "They're certainly entitled to do that, but we believe they can't legally gamble in them, and hopefully the lawsuit will establish that once and for all."

The lawsuit has lingered in federal court for years as the nation has expanded the Seneca Buffalo Creek Casino, twice adding more slot machines to a temporary metal building that has housed the casino since 2007.

"I'm very confident about the federal government's legal position in defending our right to conduct gaming here," said Seneca Nation President Robert Odawi Porter. "It's obviously not just my opinion, but our gaming corporation board and their legal team have assessed the pros and cons of this, and that's why they decided to move forward."

Porter, however, expressed greater concern about the potential for a statewide referendum over expanding commercial casino gambling in the state to encroach on the gaming compact the Senecas struck in 2002. The agreement, which can be automatically renewed after it expires in 2016, gave the Senecas exclusive rights to operate casinos in Western New York in exchange for paying a portion of slot machine revenue to the state.

State lawmakers have moved forward with plans to hold a statewide referendum next year to allow up to seven commercial casinos in the state, but have not revealed whether any would be located in Western New York.

"It is a matter of concern to see what, in the worst-case scenario, is perhaps a possible betrayal and a breach of an agreement we entered into in good faith back in 2002," Porter said. "If the state government is the kind of business partner that 10 years into a 21-year deal, they just decide to change their mind, I think that harms more than just us."

The Seneca Nation already is locked in a clash with the state over whether video lottery terminals at the Hamburg Casino and Batavia Downs violate the 2002 agreement, and the Senecas have stopped turning over the slot machine payments to Albany. The two sides have gone to arbitration over the dispute.

Despite the challenges ahead, Seneca leaders Wednesday were focused on celebrating the resumption of building a permanent casino downtown. They said they could not wait for the resolution of the lawsuit or the state's plans to begin positioning the Buffalo casino for the future.

"This is not just any casino, and it is not the one that was originally envisioned for the site," Porter said before starting Wednesday's ceremony with the blare of an air horn. "This casino will have very close ties to its neighbors and will reflect a design that they had significant input into."

The new casino is slated to open in October or November 2013 and will feature a Buffalo-themed restaurant with local brands that will include Anchor Bar chicken wings, Charlie the Butcher beef on weck and Sahlen's hot dogs. The casino also will include a bar and a parking garage, but will not have a hotel or other amenities the Seneca casinos in Niagara Falls and Salamanca include.

Porter said the Seneca Nation is in discussions with potential private partners who "might be more interested in connecting better to our facility" that he said have come forward since Seneca Gaming unveiled the latest plans in March.

Seneca Gaming leaders portrayed the project as part of neighborhood revitalization as other projects continue nearby at Erie Canal Harbor, along the Buffalo River in the Old First Ward and in the Larkin District.

Rose sees the casino project as an attempt by the Senecas to build a more permanent structure before the federal lawsuit challenging gambling on the site is resolved.

"They're gambling that one of two things will happen: Either we'll lose the lawsuit, or it will take us so long to win it that they can make a whole bunch of money in the meantime, and that could well be true," Rose said.

email: djgee@buffnews.com