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NIAGARA FALLS – City leaders are thinking twice about accepting a bailout from the New York Power Authority to help plug the budget gap.

The deal, heralded by Mayor Paul A. Dyster late last week, would allow the city access to cash it was set to receive over a 50-year period from the relicensing of the Niagara Power Project.

But because the state is fronting the money at a discount rate calculated seven years ago – and not at the historically low rates of today – the city would receive $13 million, or $22 million less than if it waited another 44 years to receive the money.

That has the City Council doubting the wisdom of accepting the deal – and vowing to find the savings through its own cuts to Dyster’s $96 million budget.

“It makes no sense” to accept the deal, said Council Chairman Sam F. Fruscione. “It always benefits NYPA. It doesn’t benefit us at all.”

Fruscione said the Council may try to negotiate with the Power Authority to allow a larger lump-sum based on the current interest rates. The city receives $850,000 per year from the relicensing pot – a future budget figure the city would lose if it took the deal now.

“If not, we might just keep receiving our $850,000 a year for 44 years because that’s a better deal,” Fruscione said.

The city finds itself in its financial jam because the Seneca Nation of Indians has withheld more than $60 million in promised revenues from the Seneca Niagara Casino. The move is part of a larger dispute the Senecas have with the state, which the nation accuses of violating its exclusive gambling rights in the region by allowing casinos at raceways in Batavia and Hamburg.

Fruscione, Dyster and city lawyers have planned a meeting for 4 p.m. today to discuss proposed cuts to Dyster’s budget, which Fruscione said was restructured with help from Councilman Glenn A. Choolokian.

He said specific items to be cut were consultant fees, funding for the state’s USA Niagara Development Corp. and unnamed budget lines that were scheduled to receive increases from this year’s budget.

“You find a couple hundred of those lines, then you’ve got $5 million,” Fruscione said, to plug the deficit that would cause layoffs and an 8 percent tax hike proposed by Dyster.

In an attempt to stymie that tax hike and likely preserve the jobs of some city employees, Dyster believes the city should remain open to accepting the Power Authority money – not only because it would stave of the job cuts, but because he has budgeted $7 million in casino revenues next year that some believe may never come.

The Power Authority offer comes with what Dyster termed a “very important” clause that allows the city to repay the money it is being fronted.

But Choolokian questioned how the city – with such tight finances now – would repay those funds.

“If we can’t close a $3.7 million budget gap, how are we going to come up with $13.4 million to pay this back?” Choolokian asked. “That’s a heck of a gap.”

email: cspecht@buffnews.com