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NIAGARA FALLS Weeks before pink slips and tax hikes were set to hit city residents and employees, the state on Friday offered Niagara Falls a temporary lifeline to pull it from its worsening budget crisis.

The relief is short-term and comes in the form of New York Power Authority money that was to be paid to the city over the course of four decades for capital projects. City leaders will now have immediate access to the more than $13 million in proceeds from the Niagara Power Project relicensing agreement to help plug their budget hole.

The move could stave off layoffs in city government while offsetting a large tax hike announced by Mayor Paul A. Dyster last week. It presents a short-term solution for a city struggling to stay afloat without more than $58 million in slot machine payments from the Seneca Niagara Casino.

"With Niagara Falls facing a crisis as a result of the Seneca Nation's failure to pay the amounts due under the compact, the state is stepping up to provide fiscal stability, minimize layoffs and ensure that essential services continue," Gov. Andrew M. Cuomo said in a statement. "I am pleased that the City of Niagara Falls and NYPA have reached this agreement, which will save vital jobs and relieve local taxpayers from having to foot the bill of the casino dispute."

The agreement drew praise from the city leaders and state legislators who have been working with Cuomo behind the scenes to release the funds. But the one-time revenue will only help the city in the near future, they warned, and the city remains eager for a permanent resolution to the dispute between the state and Senecas.

Others said the city, desperate for short-term fiscal relief, is getting a bad deal because the payments are calculated using annuity rates from 2007. If the "spin-up" of the funds was calculated using the historically low interest rates of today, the city would actually receive roughly $35 million, they said.

Some also feared the influx of cash would give false hope to city employees and prevent city leaders from making the tough choices they would have been forced to make without the funds all while borrowing from the city's future capital projects to bail it out right now.

But for the moment, leaders and city employees appeared relieved that a full-scale crisis was at least temporarily averted.

"This plan is another example of Gov. Cuomo's leadership and creativity," Dyster said. "Many New York municipalities face economic hardship, but our case was special, and needed unique attention."

The mayor also thanked State Sen. George D. Maziarz, R-Newfane, and Assemblyman John D. Ceretto, R-Lewiston, for helping his and Cuomo's administrations to craft a deal.

"The people of Niagara Falls have fallen victim to the disagreement between the state and Senecas and these accelerated payments will hopefully go a long way in assisting them in their time of need," Maziarz said.

With a second round of budget negotiations between Dyster's administration and the City Council yet to begin, Dyster would not guarantee there would be no layoffs by the time the budget is passed Dec. 15. But the influx of money appears to cover the $5 million budget gap the city would have made up with layoffs and an 8 percent tax increase.

Rep. Brian Higgins, D-Buffalo, praised Cuomo for the agreement but said that in the future Niagara Falls deserves a greater share of the Power Project proceeds.

As part of an agreement to operate its casino in downtown Niagara Falls, the Seneca Nation has paid the state and city one quarter of every dollar plunked into its slot machines, which for the city totaled roughly $18 million per year.

But the Senecas halted the payment of those funds three years ago because of a dispute with the state.

Indian leaders said the state violated the casino agreement's "exclusivity clause" by allowing racetrack casinos in Batavia and Hamburg and proposing an expansion of casino gambling.

The matter is in arbitration and is expected to be resolved in the first half of next year. In the meantime, though, the city has struggled to pay its economic development department and to make a $5 million yearly debt payment on its public safety complex.

If the Senecas win the arbitration, the Indian nation believes it is under no obligation to pay the city the $58 million it has withheld to this point. "Ultimately, the larger dispute needs to be resolved by the Seneca Nation of Indians and the State of New York," Dyster said. "However, $13 million is most definitely a good start and I sincerely thank Gov. Cuomo for delivering funding at a time it is needed most."

If the city were to receive the money in the near future, city and Power Authority leaders have agreed that the city would be allowed to repay the authority the money it has fronted to Niagara Falls.

Officials believe they have the latitude to spend them on capital projects including infrastructure, economic development and police and fire protection. The city council will meet at 4 p.m. Tuesday in City Hall to discuss the proceeds.

email: cspecht@buffnews.com