The termination of a casino revenue-sharing agreement between the Seneca Nation of Indians and New York State along with three host municipalities is a credit negative for two of the host governments, according to Moody’s Investors Service.
The Seneca Nation, which operates three Western New York casinos in Niagara Falls, Buffalo and Salamanca, announced on March 22 that it would stop remitting casino revenue sharing payments. The tribe has transferred about $1.4 billion to the state and its local governments that house the gaming facilities under a 2002 agreement. It was slated to make a final $30 million payment by March 31.
“The end of the revenue sharing agreement is particularly negative for Niagara Falls and Salamanca because both rely on casino revenues to fund day-to-day operations,” said Moody’s analyst Cristin Jacoby in a report Thursday. “The discontinuation of fund transfers affects the state and Buffalo less because both have significantly larger budgets and more diverse revenue streams.”
Jacoby noted that Niagara Falls, which Moody’s rates at Baa2 with a stable outlook, received roughly 15% of its operating revenue from casino revenue transfers during the 2015 fiscal year. Niagara Falls and Salamanca, which Moody’s doesn’t rate, both experienced “significant financial distress” during previous revenue disputes with the Seneca tribe, according to Jacoby.
New York State awarded the Seneca tribe exclusive rights to operate three casinos in Western New York in exchange for up to 25% of slot machine revenues to be split between the host localities and the state. Under the 2002 agreement, the tribe remits the payments to the state, which then distributes the money to the three local governments.
“This revenue partially compensates the host communities for municipal services because tribal lands are tax-exempt and therefore do not directly contribute to local budgets,” said Jacoby.
A 2010 disagreement with the state prompted to Senecas to withhold funding and causing a four-year break in revenue sharing before a 2013 memorandum of understanding was reached. During this four year window, Niagara Falls incurred multi-year operating deficits that required dipping into reserves. The city’s available fund balance dropped from 24.4% in 2009 to negative 0.2% in 2012, according to Moody’s.
Jacoby noted that since the March 22 announcement, tribal leadership has indicated a willingness to establish separate agreements with the host municipalities. Niagara Falls officials are expecting to continue receiving casino revenues based either on resolving a state dispute from the 2013 agreement over how long revenue sharing is supposed to last or forging a new agreement with the tribe.
“The Seneca Nation president said that the tribe is willing to pay for government services provided on the local level through revenue-sharing agreements,” said Jacoby. “However, the parameters of future revenue-sharing agreements are uncertain and any material reduction in revenue transfers would be credit negative.”
