NIAGARA FALLS — A decision to drastically reduce the amount of federal community-development money set aside to demolish vacant houses next year has block club leaders concerned that progress made this year to reduce blight would be erased.

Mayor Paul A. Dyster and the City Council last week finalized a $6.8 million Community Development Department budget for 2010 that reduces funding for demolitions by more than half of what was allocated this year.

Dyster said city officials are working to identify other money that could be used for demolitions next year to make up the difference. City leaders are also considering using $700,000 of casino revenue that has tentatively been written into the city’s capital plan for demolitions next year.

But block club leaders plan to rally for even more demolition funds in the coming weeks.

“Distressed housing is probably the number one issue after pothole-riddled streets,” said Block Club Council President Roger L. Spurback.

The Community Development Department budget, which uses federal money to fund dozens of projects and programs throughout the city, includes $245,000 for demolishing blighted buildings next year. Last year, officials allocated more than $600,000 from that budget to demolitions.

Each year, city officials have to pick and choose between projects to spread around a limited pot of federal community development block grant funds.

The 2010 community-development budget includes money for a variety of projects, including a $250,000 proposal to modernize the elevator area at the Niagara Falls Memorial Medical Center parking ramp and an additional $100,000 for an elevator at the Niagara Arts and Cultural Center.

“We’d love to see the hospital continue to get money, but there’s a greater need right now in distressed housing than there is for elevators,” Spurback said.

Hospital officials say the elevators are a critical community need.

“It’s really assisting access for the elderly and physically challenged to access the medical office building or the hospital when they park in the ramp,” said Joseph A. Ruffolo, Memorial Medical Center president and chief executive officer.

Councilman Charles Walker, who is an employee at Memorial, said Council members felt that the city should begin to shift the cost of demolitions to casino revenue, rather than federal community-development funds. He said the “numbers will remain high as far as demolitions” the city would complete next year.

“More or less, the Council’s focus is that demolition is part of economic development, clearing up blighted properties, getting blighted properties out of certain areas,” Walker said.

Spurback worries that cuts in the Community Development Department budget for demolitions would mean that the total amount spent on tearing down distressed homes in the Falls next year will be reduced just as the city begins to make progress.

City leaders this year have used a combination of both casino revenue and federal community development block grant funds to award three demolition contracts worth $923,765. They have targeted 53 blighted buildings with that money. An additional four buildings near Memorial will be torn down to create a new parking lot.

But the number of vacant houses in the city looms large.

A new census survey released this month estimates that nearly 1 in 5 houses in the city is vacant.

“It’s a cancer,” said Stephen Dojka, a Cudaback Avenue resident. “People get discouraged. They leave, so other absentee landowners take over. It gets worse and worse.”

Dojka said residents in his neighborhood waited years for two vacant houses on Falls Street and Welch Avenue to make it onto the city’s demolition list. But there are two more in the neighborhood that residents believe need to be taken down.

Dyster estimated earlier this month that as many as 1,000 houses in the city have structural problems that could eventually lead to demolition if they go unaddressed.

The mayor has proposed that the city reorganize the Department of Inspections to increase personnel to address buildings before they reach the stage where they need to be razed.

Block club leaders have been pleased with efforts to expand the Inspections Department, but they want the city to continue to allocate $1.3 million a year from community development and casino revenue to demolish buildings.

“They’ve got to start addressing this problem or they’re never going to get people to move into this city,” said Norma Higgs, treasurer of the city’s Block Club Council. “It’s just a Catch-22.”