Albany and the Seneca Nation of Indians have launched the War of 2012 and, like the conflict of two centuries earlier, Western New York is paying a high price. New York started the fight, but neither side is acquitting itself well.

The problems began with Albany’s apparent violation of the gambling compact between the state and the Senecas by introducing casino-style slot machines within the exclusivity zone defined by the compact. Exhibit A is the array of what were once coyly called “video lottery terminals” at the Hamburg and Batavia “racinos.” That pretense has been dropped and both facilities now promote themselves as casinos with slot machines.

Because of that decision, the Senecas have withheld more than $400 million in payments to the state, about 25 percent of which was due to be sent to local governments where the Senecas operate casinos. Leading the list of aggrieved municipalities is Niagara Falls, home of the Seneca Niagara Casino.

A poor city in dire need of the revenues, Niagara Falls has lost out on more than $58 million since the dispute began three years ago.

Exactly why New York decided to move into the exclusivity zone is unknown, but it is fair to speculate that New York state simply did the math and calculated that it would gain more than it would lose. Given that the Great Recession is still clamping off the flow of tax dollars to the state, the decision may be arithmetically sound, even if it is ethically bankrupt.

But New York is playing this game at the expense of local governments that had planned on significant revenues based on the compact. The Seneca Nation proposed three years ago to make whole those municipalities – Niagara Falls, Buffalo and Salamanca – by paying them directly. The idea had bipartisan legislative support, but never went anywhere.

Meanwhile, the Senecas have poked back at the state, at first temporarily blocking an important highway repair project, and now threatening to build a gas station and convenience store on the grounds of the Seneca Niagara Casino. The nation rejected state criticism, in effect telling Gov. Andrew M. Cuomo to mind his own business. But the economy of Niagara Falls is his business, and the possibility of a Seneca gas station and store undercutting Niagara Falls businesses that pay their taxes is provocative. Frankly, those facilities don’t belong there.

The Senecas and the Cuomo administration need to find their way back out of this mess, and Niagara Falls, Buffalo and Salamanca need to be compensated, either by Albany or the Senecas, for revenues lost during this dispute, plus interest. They are the ones dealing with additional traffic, problems caused by compulsive gambling and the kind of diminished overall economic impact for which casinos are famous.

The bottom line for the Cuomo administration and for the Seneca Nation is to straighten out their issues with minimum impact on other New Yorkers. Right now, too many are paying the price for this dispute.