Thanks to the casino dispute between the state and Seneca Nation of Indians, Niagara Falls has had budget problems.

Now it could have borrowing problems, too.

Moody’s credit agency has dropped the city’s credit rating two slots – from A2 to Baa1 – because of “significant declines in the city’s general fund liquidity and reserve levels ... due primarily to budgeted casino revenues that have not been remitted to the city.”

“There’s absolutely no denying [cash flow] has been dramatically impacted by the casino revenue situation,” Mayor Paul A. Dyster said. “I can’t say we were surprised.”

City leaders warn it could lessen their ability to borrow money and force them to pay more when they do because they’ll be charged higher interest rates. They say it also could dampen Niagara Falls’ role as a tourism hot spot and even hobble New York’s effort to expand casino gambling statewide.

The city now has $65 million in long-term city debt, Moody’s stated, a key issue along with high unemployment and a poor population that is at half its peak level of the 1960s.

And while the city hobbled through a budget crisis last year, a similar situation looms again because the city is counting on $7 million in casino funds for its budget. The Indian nation owes the city $60 million, money it has held up while claiming the state violated its exclusive right to run casinos.

The downgrade only makes the Falls’ situation worse, Dyster said, adding that it could make it harder for the city to borrow money for key tourism initiatives.

Projects like its new $44 million Amtrak transportation hub are likely to depend this year on the city’s ability to borrow, and any problems the city has with those projects could hamper its role in Gov. Andrew M. Cuomo’s upstate revitalization efforts.

“The thing I’m concerned about now is, for reasons out of our control, the situation here in Niagara Falls could become a drag on the region’s economic recovery,” Dyster said.

“There’s a part we’re expected to play here,” he added, “and ... I’m just concerned the negative impact of casino revenues are going to make it difficult to keep up our end.”

Cuomo in his State of the State speech Wednesday proposed new upstate marketing efforts, and tourism has been identified as a key piece in the governor’s regional economic development plan.

But Dyster said that without some sort of relief to temper the downgrade, “I think the state and regional interests are going to begin to suffer.”

Badly needed infrastructure upgrades and tourism marketing, for instance, have seen large-scale cutbacks in Niagara Falls because of the casino crisis.

That has impacts not only on the city’s economy, Dyster said, but also that of the region and state.

“The potential negative consequences of not resolving the casino dispute are now broadened outside the surrounding area,” he said.

Dyster said the downgrade also “throws a shadow over the governor’s efforts to put in a rational system of statewide gaming,” giving critics of the plan fodder for their argument.

“As this story breaks across the state, people looking at the casino issue statewide are going to look at this news from Moody’s and say, ‘Well, wasn’t Niagara Falls supposed to benefit from this casino?’ ” he said.

That could be a public relations disaster for the effort to bring casinos to other areas of the state, he said.

“I don’t think that’s what the governor’s office wants. It’s not what we want, and I’m guessing it’s not what the Seneca Nation wants,” the mayor said.

Dyster said he would ask state officials about ways the state might help offset the downgrade.

Local officials often talk about how the city’s largest debt obligation – a new police station – was mandated by the state.

As it waits for the casino dispute to end – it is in arbitration now – the city needs to tighten its belt and build up an even greater reserve fund than the $20 million pot that has been depleted in the wake of the casino dispute, Council Chairman Glenn A. Choolokian said.

“It just shows now we’ve got to be more conservative and watch what we do,” Choolokian said.

“We’ve got to prioritize everything now ... It just shows what a devastating effect it’s had on the city.”