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ALBANY – Before the Seneca Nation of Indians pays even part of the $572 million it owes the state and local governments in casino revenue-sharing money, it wants the Cuomo administration to make several concessions, including giving it casino development rights in downtown Rochester.

The Senecas also seek an extension of their current casino compact with the state for Western New York and restrictions on new gambling devices at three area racetrack-based casinos.

They are making these demands during arbitration proceedings, including a session held last week in Syracuse, according to sources who spoke on condition of anonymity.

The Senecas also have said they want to pay less than the $572 million they are holding in escrow for the state and the cities of Niagara Falls, Salamanca and Buffalo, where the tribe’s three casinos are located. The Senecas have argued that the state should be financially penalized for permitting what the Senecas believe are state-sanctioned violations of their casino compact by allowing banned forms of gambling in their casino exclusivity zone of Western New York.

Shortly after the Senecas’ demands were made, the Cuomo administration last weekend proposed to place a new, non-Indian casino in Niagara Falls in direct competition with the Seneca Niagara Casino.

That proposal is seen as a possible state bargaining chip in talks with the Senecas, though Cuomo has earned a reputation for making good on his threats and is said to believe that Niagara Falls could support a new casino.

The Seneca Nation and the Cuomo administration both declined to comment Wednesday, citing a confidentiality order imposed by Judith Kaye, the former chief judge of the state’s highest court who is serving as chairwoman of the three-member arbitration panel hearing the dispute.

Those with a stake in the talks say the sides are clearly at a crucial point and that, in the end, both the Senecas and the Cuomo administration need to come away with some political and financial victories.

“This is the moment. This is the point at which this issue is in the process of being decided. The parties are at the edge of the falls here, if you will, at the point of no return,” said Niagara Falls Mayor Paul Dyster, whose city is owed more than $60 million in Seneca casino revenue-sharing payments.

“They’re either going to look at each other and say, ‘This is crazy. How do we settle our differences?’ Or, they’re going to take one last look at the issue and say, ‘I don’t care if I go down, I’m going to take you down with me.’ Governing is the art of compromise,” the mayor said.

Dyster also said he has no details on any demands by either side in the arbitration case.

But individuals with knowledge of the closed-door proceedings, who spoke this week with The Buffalo News, said the Seneca demands were met with sharp opposition by the state.

The settlement plan that the Senecas proposed includes rights to develop a casino in downtown Rochester. Former Seneca President Robert Odawi Porter first floated the idea of a Rochester gambling hall in 2011.

Since the federal government backed away from allowing Indian tribes to build off-reservation casinos, it is believed the Senecas want Cuomo to add Rochester to the list of seven possible sites where the state might permit a new casino. The Senecas could then seek to develop a Rochester facility, possibly with a non-Indian partner.

The Senecas also have demanded the state ban any new electronic gambling devices at three racetrack-based casinos – Hamburg, Batavia and Finger Lakes – that are within the exclusive gambling zone granted the tribe in its 2002 gambling compact with the state.

The Seneca Nation also has been concerned that the state permitted local racetrack gambling halls to market themselves as casinos instead of “racinos.” Those facilities have gambling but cannot offer table games, such as poker.

The Senecas also want smoking rooms shut down at Batavia Downs Casino, the facility run by Western Regional Off-Track Betting Corp., sources said. That facility is owned by Buffalo, Erie County and other Western New York counties.

The Senecas permit smoking at their casinos, while other betting facilities do not.

Batavia, though, allows smoking for its bettors as a carve-out to the state’s clean indoor air act.

The operators of those track casinos, which provide tens of millions of dollars annually to the state in revenue-sharing payments, are anxiously awaiting the outcome of the state-Seneca arbitration.

One potential result would be an agreement to allow the region’s racinos to have full gambling licenses, with table games and real slot machines, to compete with the Senecas.

In the event that does not happen, which appears certain if Cuomo has his way, the racetracks want to be shielded from new gambling competition.

“My only concern is if the arbitration award is upheld and we can’t have anything other than what we have,” said Dennis Lang, chief executive officer of Buffalo Raceway and its Hamburg Casino at the Fairgrounds. “That’s OK, as long as you give some type of protection that you wouldn’t have another full-fledged casino in Orchard Park or Buffalo or someplace like that. If we were able to have a full-blown casino here, that would be great. If we can’t, we need some protection, and that’s OK, too.”

Another racino operator appeared unconcerned about the Seneca-Cuomo dispute.

“I can’t see any effect on us or the other two casinos in Western New York by the arbitration. That’s the opinion of our legal counsel,” said Michael Kane, president and chief executive officer of Western Regional Off-Track Betting Corp.

Officials with Buffalo’s Delaware North Cos., which owns the Finger Lakes Casino and Racetrack, did not respond to requests to comment.

Another demand that Seneca negotiators have put on the table is an extension of the casino compact signed in 2001 by then-Gov. George E. Pataki and then-Seneca President Cyrus Schindler.

The compact, which took effect in 2002 after approval by the State Legislature, expires in 2016, though there is a provision for an automatic renewal period of seven years if neither party objects.

The tribe wants at least the additional seven years guaranteed as a way to protect its exclusivity arrangement and pave the way for future investments that might be financially difficult if the compact expired, sources said.

Dyster, the Niagara Falls mayor, said he hopes the state and tribe can come to a negotiated settlement before an arbitration decision, which could cause additional problems by making one side the clear winner or loser.

The Senecas, he said, need to come away from the dispute with their sovereignty unblemished and with guarantees for future financial success to build off the 2002 compact. The state, he said, does not want the Senecas to be part of any opposition campaign to Cuomo’s statewide casino-expansion effort, if the plan goes to voters in a November referendum.

The state might win the arbitration battle, he said, but the Senecas are not without clout.

“The Senecas still have a ton of money, and then they could engage in a statewide lobbying effort to sabotage what the governor is trying to do in terms of his program bill and casino referendum,” Dyster said.

Niagara Falls is “kind of stuck in the middle of this thing,” he said, noting that the Senecas’ fight for exclusivity works financially for the city, while the state fighting to get money the state and localities are owed also works.

If there was one silver lining Wednesday, Dyster said, it is that the Cuomo administration and the Senecas were not discussing the closed-door talks with The News.

“Both sides have respected Judge Kaye’s wishes that the matter before the arbitration panel not be discussed. I find it hopeful that they’re both respecting the rules of the game,” he said.

email: tprecious@buffnews.com