The City of Niagara Falls is expected to deplete its fund balance by the end of the year because of a dispute over Seneca casino revenue, according to an audit issued Tuesday by the state Comptroller's Office.
The city, caught in the middle of a dispute between New York State and the Seneca Nation of Indians over casino revenue sharing, has been using about $9 million in casino revenue each year to plug budget gaps since 2014. The city's also spent an additional $2.9 million from its fund balance per year over the same period to balance its budget, the audit found.
"Due to the current impasse with the Nation, it is uncertain whether the city will receive any future casino revenue," auditors wrote in a 17-page report. "Therefore, it is imperative that city officials take immediate action to address the city's fiscal problems."
Mayor Paul A. Dyster said his administration does not believe the city will run out of reserves as quickly as the auditors assert it will.
"While the City of Niagara Falls is not in the same financial position as the previous time the Seneca Nation of Indians suspended payments required under the compact to New York state, we believe we have adequate reserves in place to last over the course of this current dispute," Dyster wrote in a letter to auditors dated Sept. 8.
The state's audit reviewed city financial records from Jan. 1, 2015, through June 30 of this year, the comptroller's office said.
The amount of money in the city's casino fund was $43.9 million in 2013, and has dropped to $25.4 million as of May 31. Auditors projected the city will have about $11 million in casino funds left at the end of the year, assuming it receives no additional casino revenue.
Niagara Falls would be close to completely running out of casino funds by the end of 2018 if the city continues to plug its annual budget gap at its recent average, auditors said.
Niagara Falls has been receiving fewer and fewer casino dollars in recent years – the city got $14.2 million in 2013 and $12.3 million last year. At the same time, city officials have been using more casino money to balance their general fund budget. The city spent $6.6 million in casino money to pay for general fund expenses in 2014 and auditors project that figure will rise to $10.9 million this year.
Auditors recommended the city seek new sources of revenue, though they noted the city is at about 81 percent of its constitutional taxing limit and would only be able to raise the annual tax levy by about $5.5 million before hitting its limit.
The Falls won't completely run out of fund balance at the end of the year, auditors said in their projection. The city will have some funding remaining in reserves that either can't be spent or the spending of which is restricted on certain items or categories. The amount of unrestricted money available in the city's reserves has fallen from $16.5 million at the beginning of 2014 to $2.3 million at the end of last year, auditors said.
Dyster said the city has taken steps to improve its finances.
Niagara Falls implemented a freeze on all non-essential spending on July 1 and is talking about how to reduce expenses in next year's budget, he wrote.
The Seneca Nation asserts that under its agreement with the state to operate three casinos in Western New York, it is no longer required to make payments to the state, which in turn sends some of the money to local governments where the casinos are located. The Seneca's payments to the state had totaled about $100 million a year.
Seneca President Todd Gates in March announced the Nation was looking to make financial agreements directly with the three cities that host its casinos because he believed no further payments to the state were required under the Senecas' deal.
Gov. Andrew Cuomo's administration on Sept. 7 demanded the casino revenue dispute with the Senecas go through binding arbitration.
Auditors project Niagara Falls may see a budget gap in 2019 and beyond of $12 million annually, assuming no more casino money is paid to Niagara Falls.
Auditors recommended the city adopt "realistic" budgets, rebuild unrestricted fund balance and develop and update a comprehensive multi-year financial plan.