NIAGARA FALLS – When slot machine revenues from the Seneca Niagara Casino started coming to Niagara Falls a decade ago, they enabled the city to improve its crumbling infrastructure, begin development projects and keep taxes low for residents.

But some observers say the revenues also caused the city to become dependent on a stream of money that has proved to be unstable.

The funds haven’t flowed into the city’s coffers in three years because of a dispute between the state and the Seneca Nation of Indians, and residents are upset that those funds are now causing a budget deficit that could lead to layoffs and a large tax increase.

As it stares down a $5 million budget deficit and the possibility of layoffs and a tax hike – and considers whether to accept a bailout from the New York Power Authority – the city could no doubt use the held-up casino revenues.

But for nearly a decade, the city did receive those funds either once or twice a year, and it spent them on a variety of large and small infrastructure, economic-development and public safety projects, according to a Buffalo News analysis. The money was spent on a few large projects and otherwise sprinkled around to a variety of smaller community upgrades, the review shows.

Records show that the city received $69.3 million in casino revenue from the time the casino was built in 2002 until three years ago, when the Seneca Nation began to withhold the payments.

The city was required to pay more than $20 million of that money to other local entities such as Niagara County, the city school district, Niagara Tourism & Convention Corp. and Niagara Falls Memorial Medical Center. The other $48 million in nondiscretionary funds was spent by the city in the following ways, according to records provided by Mayor Paul A. Dyster’s administration:

• $29.1 million on infrastructure improvements such as road paving and capital projects such as the Main Street train station, debt payments on the city’s new courthouse, and for city equipment.

• $13.4 million on economic-development projects such as the new Hope VI housing project, demolition work and a series of planning initiatives.

• $2 million on funding for the police and fire departments and $3 million to make up for budget reduction in tax assessments.

Looking at the city 10 years ago, few would argue that there was a better use of that money than making the infrastructure improvements.

“It looked like hell,” said City Council Chairman Sam Fruscione. “Every article was about the condition of the roads, the condition of the abandoned houses and the closing of defunct hotels.”

It grew so bad, one department head said, that one piece of city equipment was held together with bailing wire.

Casino revenue helped change that, allowing the city to pave more than 200 streets – 90 large ones – and purchase long-needed paving equipment to the tune of $2.6 million.

“One of the sad things here is we were really catching up,” Dyster said. “When I think of the roads that are in really bad shape, it’s a relatively short list, whereas before almost everything was in need of repair and it was easier to tell you what was in good shape.”

Blight-clearing teams also were dispatched to the streets to make the area’s natural wonder look – for the first time in years – at least presentable to tourists.

“Downtown Niagara Falls had such a bad reputation, and it was some kind of combination of blighted and deserted, desolate,” Dyster said. “That was just unacceptable.”

The mayor said he believes that those improvements, particularly in the downtown tourism area, paved the way for larger economic-development projects such as the Culinary Institute Niagara Falls, which the city helped fund, and the development of a redesigned, $44 million Amtrak station and Underground Railroad museum that is still under construction.

“I think we needed some signature projects that were going to be the thing to convince people that we could do projects, because we had a reputation of being unable to get things done,” Dyster said. “Even with casino revenues in hand, the government can’t be the main economic-development driver. The private sector has to take the lead, but I think government making the right type of investment is how you do that.”

Costly police station

However, some observers believe that the city may have counted on the money a bit too much, while others criticize the city for using a portion of the revenues for operating expenses. They say the city should have budgeted more conservatively when it had the money so that when a crisis occurred, it was in a better position to deal with it.

“I’ve been around forever and ever, and I’ve never seen [a budget crisis] like this,” Ron Anderluh, president of the Niagara Street Business & Professional Association, told the Council last week. “It’s a shame. We’re not in favor of any more taxes in this city – we just cannot afford it.

“Let’s use this as an awakening, and the next time, when we get all this money from the casino, let’s set this money aside.”

Fruscione says projects that never would have been feasible without the casino profits grew more expensive than first expected, with mounting change orders and consulting fees. One example, Fruscione said, is the Main Street police station, a project that grew from a state-mandated Police Headquarters into a full-scale, $45 million public safety complex with lush judges chambers – in one of the city’s most blighted areas.

“All of a sudden, we have Taj Mahal in the middle of Main Street,” Fruscione said. “It didn’t need to be such a grand thing.”

Economic-development jobs also were taken from the city’s general fund and placed on casino revenues, something that State Sen. George D. Maziarz, R-Newfane, said was never the intention of those who negotiated the casino deal. Dyster has called the positions a “legitimate expense.”

“I think the city has been a little too dependent on the money,” Fruscione said. “It’s like somebody makes a tray of pizza, and sometimes you eat too many slices.”

Councilman Glenn A. Choolokian takes it a step further, saying the city’s financial picture “is worse now than ever in the history of the City of Niagara Falls.” The city should have saved more money when it had the funds, he said, so that it didn’t need to sever ties with city workers now to balance the budget.

“It’s very bad planning,” Choolokian said. “Just because the money is coming in doesn’t mean you have to spend it as fast as it comes in.”

When the Senecas stopped paying the funds three years ago, the city kept on spending – on expenses such as the Economic Development Department; the loss of yearly tax revenue; police and fire service; and debt payments on the police station, by far its largest expense at more than $4 million per year.

It also has budgeted $7 million in “anticipated” casino revenues for next year despite the fact that the casino dispute between the state and the Senecas is in arbitration, and there is doubt about whether the city will receive those funds.

That has angered residents such as Donald A. Supon, who addressed the Council at last week’s budget hearing. “Those are all extra dollars,” he said. “We don’t have that money yet, and we don’t know it will come. Anything funded by that should be an automatic cutout.”

Dyster counters that the city stowed away more than $20 million for rainy-day scenarios such as the current situation in an account called the special projects fund balance. He has called it “unfair” that the city budgeted conservatively and built up a reserve, only to have it depleted by a dispute that it didn’t start and didn’t anticipate.

“I’ve always stated my intent to try to treat casino revenues as much as possible as nonrecurring revenues,” Dyster said. “Instead of borrowing against them to do some big project upfront, you do pay-as-you-go, so if there’s a disruption of revenues, you don’t find yourself in a difficult situation.”

The one exception to that strategy, Dyster said, was the police station, which was developed under then-Mayor Vince Anello.

Anello himself warned that the project could easily become a “blank check” for developers. The yearly debt payment the city needs to make for the police station is now roughly the size of this year’s budget gap.

Cutting to the bone

Most lawmakers say the city workforce is at a “bare-bones” level, mirroring the population loss that has occurred since its all-time high of more than 100,000 people half a century ago.

But like other municipalities across the state and nation, the costs of wages, pensions and health care have only ballooned, Dyster has said. Expenses in city government – 80 percent payroll-driven – have gone up by $19 million in the last six years, he added, though the tax levy in the city has actually decreased.

That was made possible by inserting the casino revenue to offset the loss of revenue through the gift of the 50 acres to the Senecas for their casino and hotel, and also housing demolition work, which took more than $1 million off the property tax rolls last year.

Some observers say the casino revenues prevented the city from having to make the hard choices faced by most upstate cities bleeding population and industry. But in the Falls, the day of reckoning has finally come.

“Now it’s time to take a step back, shake the tree and everyone that has their hand out, you cut it off,” Choolokian said. “Now you have to look and re-evaluate this. What is important to the businesspeople and residents of the city? Everyone who wants a project, you can’t do it. This has to be a … lesson.”

To view the casino revenues spent by the city, visit