* Declining population, high poverty rates in both
* Tribal gambling dispute prompts revenue shortfalls
By Hilary Russ
Dec 10 (Reuters) - The New York cities of Niagara Falls and Salamanca are facing dire fiscal conditions because revenue shortfalls are compounding long-term structural problems, the state's top financial official said on Monday.
The tiny city of Salamanca could run out of cash before its 2013 fiscal year ends on March 31, said a report from New York State Comptroller Thomas DiNapoli's office.
Niagara Falls, located on the U.S. side of the iconic waterfalls, is contemplating layoffs, budget cuts and whether to take a potentially problematic payment after the mayor proposed a "disaster budget" for fiscal 2013, DiNapoli said in a separate report.
Some of the cities' state aid revenues are tied up in a gambling dispute between the state and the Seneca Nation.
The cash crunch is compounded by long-term structural problems, including declining populations and high rates of poverty in both cities, according to the reports.
The cities have spent down reserves, cut their spending and sought emergency state aid.
"Niagara Falls and Salamanca face more severe stresses than most other cities in the state, and the loss of casino revenue has exacerbated their problems," DiNapoli said in a statement.
Under a 2002 compact, the Seneca Nation agreed to share a portion of gaming revenues with the state -- which then gives some of the money back to the two cities -- in exchange for the exclusive right to operate slot machines and other gaming devices in western New York.
The tribe suspended those payments in 2009, saying that the state's expansion of gaming violated the compact.
The dispute, now in arbitration, has cost Niagara Falls as much as $60 million in revenue. Salamanca had been getting annual payments of $3 million under the agreement, DiNapoli's office said.
On Sept. 25, Moody's Investors Service said that its B2 rating and negative outlook on the Seneca Gaming Corporation were unaffected by the news that a three-member arbitration panel had been named to resolve the dispute. The tribe owns SGC.
An SGC representative did not immediately reply to a request for comment.
Niagara Falls Mayor Paul Dyster has urged the city council to approve the advance of a $13.5 million lump-sum payment from the New York Power Authority.
Usually, the authority pays the city $850,000 annually to help offset lost property tax revenue because parts of the Niagara Power Project, which is tax exempt, fall within city limits.
The city would lose that guaranteed future revenue stream if it accepts the one-time advance.
Niagara Falls' 2010 population of 50,193 was less than half its peak level in 1960. Nearly 18 percent of its families are poor, compared to a statewide average of just under 11 percent.
The city is also close to its tax and debt limits. It has exhausted 77 percent of its tax limit and 76 percent of its debt limit, compared to median rates of 44 percent and 23 percent, respectively, the report said.
Salamanca's population has also dwindled to 5,815 in 2010 from its peak of 9,577 in 1930, making it the fourth smallest city in the state. More than 15 percent of its families live in poverty.
The city's main employer is the Seneca Allegany Casino & Hotel. Nearly 62 percent of Salamanca's property value was tax exempt in 2010, the report said.