* Tribal gambling dispute prompts revenue shortfalls
* City faces deeper structural issues
* City's outstanding debt around $73.8 mln
By Edward Krudy
NEW YORK, March 8 (Reuters) - Officials from the City of Niagara Falls, New York, are warning that looming debt payments could force the cash-strapped city into a crisis by late summer if it does not receive money it says it is owed by the native American Seneca Nation.
The city faces debt payments of $800,000 in June and a further $5 million to $6 million by the end of the year, according to Glenn Choolokian, chairman of Niagara Falls City Council. That, he says, could push the city over the edge.
"Our financial situation is getting worse and worse," Choolokian told Reuters on Friday. "We're in trouble."
If the city does run into to problems it is likely to see its debt downgraded further, making it more expensive for it to borrow money and putting further pressure on its finances.
Part of Niagara's funds are tied up for three years in a dispute about gambling revenues between New York State and the Seneca Nation, which operates a casino in the city. Choolokian says the amount is as much as $66 million.
The council rejected a "disaster budget," proposed by Mayor Paul Dyster, which would have raised taxes and laid off workers, said Chookolian.
The adopted budget contained $7.2 million in gaming revenues on the expectation that the dispute, which is now in arbitration, will be resolved by the middle of the year, according to Mayor Dyster. There would be a shortfall by that amount by the end of the year if there is no agreement.
"We are tracking our cash flows very, very carefully, on a month-by-month basis and it looks as though we start running into problems in late summer, so it going to close," said Dyster, adding that he is in contact on an almost daily basis with officials in the state's capital Albany.
Dyster said the gaming revenues should be providing the city with around $18 million each year and not getting those means the city has blown through reserves of $20 million paying about $5 million in debt service each year.
But Niagara's problems go beyond disputed gambling revenues. A report in December by the State Comptroller's office highlighted a drop in revenues, a stagnant tax base and an increasing number of families living in poverty.
Niagara's financial problems, although particularly acute, resonate with many struggling towns in northern New York state where an exodus of industries and aging populations mean higher unemployment and a great strain on local finances.
The city's population almost halved to around 50,000 from 1960 to 2010, the largest drop in any city during the period, the report found. Nearly one fifth of the families live in poverty and the city's unemployment rate is 11.4 percent, compared to the state-wide average for cities of 8.2 percent, according to the December report.
The comptroller's report also found that Niagara has used up 76 percent of its constitutional debt limit and has $73.8 million in outstanding debt.
Rating agency Moody's Investors Service slapped the city with a multi-notch downgrade on Jan. 9 and said it was giving the city three months before it decides whether to cut its rating further. Moody's currently rates the city's debt Baa1, still investment grade, but down from A2 previously.
Ratings matter because they indicate how risky the city's debt is and determines how much interest investors will ask to take on the added risk.
The city's problems will not go away once the dispute with Seneca is resolved. It will take revitalizing the tourist industry and attracting new businesses to the former industrial center such as renewable energy and recycling, says Dyster.
He points to Greenpac Mill, a $430-million recycled paper products plant set to go on line later this year that will bring 108 direct jobs to the area, and potentially many others in related industries like trucking.
"If the casino thing gets resolved and we get paid, where are we then? Well, where we are is we're a poor upstate city," said Dyster. "We're just back to facing the same challenges faced by every upstate city."