NIAGARA FALLS — A lengthy casino cash dispute between the Seneca Nation of Indians and New York state could pose some problems for the city’s finances.

 City Comptroller Maria Brown said Tuesday the decision by Seneca tribal leaders to suspend casino cash payments to the state is not cause for immediate concern, but could present at least one serious challenge if the two sides remain at odds months from now.

 Brown said the city’s 2010 budget relies on 2009 casino cash revenues to cover a debt service increase of roughly $4.5 million. Brown said the city was still awaiting payment for its share of the 2009 casino revenue when Seneca leaders agreed on Monday to withhold future allocations because they felt state-approved gambling operations threatened their Western New York casino operations. Brown said the city has enough cash reserves to cover its debt service obligations through the end of the year, but would not have sufficient funds to do the same in 2011.

“You are looking at a $4.5 million cash-flow hardship that is put on the city,” she said.

Aside from the potential debt service problem, Brown said delays in payment of casino revenue would force the city to suspend activities supported with casino cash, including various road repair projects, Zoom Team cleanups, some demolitions and future concert series, including those produced in partnership with the Hard Rock Cafe. When it comes to those items, Brown said the city simply would not have enough revenue to cover them in the absence of casino cash.

“These are the things that the taxpayers can see and the things we benefit from,” Brown said. “These are the things I would advise the mayor that there’s no money for.”

To date, the Seneca Gaming Corp. has paid the state $707.2 million in slot fees. Tribal leaders voted to withhold future payouts because they believe the state has violated the terms of a 2001 gambling agreement that granted the Nation exclusive rights to operate Class III gaming operations in Western New York. The move comes as the state is attempting to impose taxes on cigarettes sold at Native American outlets.

On Tuesday, federal Judge Richard Arcara granted the Seneca and Cayuga nations’ request for a court order that stops the state from imposing a $4.35 per pack sales tax on cigarettes sold by reservation retailers starting today. The duration of the order wasn’t immediately clear. A follow-up hearing in the case is set for Thursday.

Attempts to collect the tax in the 1990s resulted in sometimes-violent protests and fires on Seneca territories.

State lawmakers representing Niagara County said Tuesday they are not looking for a repeat of those ugly confrontations and do not agree with the push by Gov. David Paterson’s administration to begin tax collections on tribal retail cigarettes.

State Sen. George Maziarz, R-Newfane, said the move supported by Paterson and other downstate leaders shows their lack of concern and understanding about how such decisions impact residents living in places like Western New York. Maziarz said he’s concerned about any delays in casino cash payments and the potential for violence the taxation issue brings. He said he believes the Paterson administration should have done more to enter into good-faith negotiations with tribal leaders before attempting to push the tax collection plan.

“It’s going to be one of the effects of what they do,” Maziarz said of the potential for the Senecas to prevent the city, Niagara Falls Memorial Medical Center and other local entities from receiving casino revenues they are owed.

The governor and state lawmakers agreed in June to pursue roughly $200 million in revenue by requiring cigarette wholesalers to prepay taxes before making shipments to reservation stores.  The move would force Native American retailers to pass the increased costs along to their customers.

State Assemblywoman Francine DelMonte, D-Lewiston, said members of the local delegation to the state Legislature generally agree that increasing cigarette taxes causes more problems than it is worth.

“I am very much opposed to these cigarette taxes,” DelMonte said. “I truly believe that the state has contributed to this situation every time it raises the taxes.”

In this case, DelMonte said she, too, is concerned about the potential impact any delay in casino cash payments could have on the finances of local recipients such as the city, the hospital and the school district. She added that the casino gaming compact between the Seneca Nation and the state includes provisions for a dispute resolution process that she said the Senecas have evidently failed to follow.

DelMonte called on Paterson and state Attorney General Andrew Cuomo to investigate the issue more closely to determine if the Nation has indeed violated the terms of the compact and whether tribal leaders can be compelled to make good on casino cash payments outlined in the document.

“The city shouldn’t be held hostage during this dispute,” she said.