- Three years after it opened, the Seneca-Niagara Casino hasn't sparked the new development state and local leaders promised
First of two parts -

By PHIL FAIRBANKS
News Staff Reporter
4/16/2006
Original Article

When casino gambling arrived in Western New York, state and local leaders promised new hotels, restaurants, shopping centers and thousands of non-casino jobs.

It's a promise never kept.

The Seneca Gaming Corp., after three years of operation, rakes in nearly $500 million a year, two-thirds from its Niagara Falls casino, and turns a weekly operating profit of $2.7 million.

But outside the casino walls, the economics are murky, with a mix of good - more than 3,000 people are employed at Seneca Niagara Casino - and bad - the glaring lack of development and job growth around the complex.

Niagara Falls' experiment with casino gambling - and the model it provides Buffalo - resembles Atlantic City more than Las Vegas.

A Buffalo News analysis of government records and casino documents, as well as interviews with 35 developers, local officials and business owners, found:

• Most of the $306 million spent at the Seneca Niagara casino comes from local wallets - an estimated $177 million last year.

• The promise of spin-off development, new hotels, restaurants and stores, remains unfulfilled. One reason is competition from the Senecas. They took in $58 million in food, beverage and entertainment sales at their two casinos last year.

• Sales and bed tax revenues collected by the City of Niagara Falls have remained flat in the three years since the casino opened. Property tax collections are up, but largely because of annual increases in the tax rate.

• Property values around the casino have increased but not because of new development. The increases are driven by speculators.

Seneca Niagara, of course, is more than a casino. It's also 26 acres of shops and restaurants.

And since late December, it is home to one of the city's newest landmarks - a world-class, 26-story hotel that single-handledly altered the image of Niagara Falls and created a new tourism market - the well-heeled gambler.

Still, the casino created cash for the city and state, and jobs:

• More than 3,050 people work at the casino complex, earning an average of $28,000 a year with $8,400 in fringe benefits.

• The casino, through its spending and its employees' spending, may be responsible for another 1,000 local jobs, notably vendors serving the casino. • The city received $9.8 million in slot machine revenue from the Senecas in 2003 and is waiting for another $24 million from the past two years. The state, by comparison, took in $100 million over the same three-year period.

Spending siphoned off

One thing is certain. The casino's impact is huge.

In 2005, Seneca Gaming - with its casino in Niagara Falls and a smaller one in Salamanca - tallied $498 million in revenue. That's nearly double the annual revenues of large local employers such as Wilson Greatbatch and Computer Task Group.

The company also made money. Its two casinos reported an operating profit last year of $144 million, or $2.7 million a week.

Not all casino money comes from the local economy, but most of it does. That's the rub.

A 2005 study by the state estimated the local share of the Seneca Niagara's annual revenues at about 58 percent. The authors of the study, the Center for Governmental Research in Rochester, think the same trend continues. If it does, that would put the two-county spending at Seneca Niagara at about $177 million.

Some is money that would have otherwise gone to casinos in Ontario. But most - about $101 million using the Rochester study's formula - is money previously spent in other ways, including other forms of entertainment, culture and recreation.

Yes, there are now world-class dining and accommodations in Niagara Falls. But it's all within the tax-free Seneca territory.

The casino is now a casino resort. In addition to the 614-room hotel, there are six restaurants, a 443-seat theater and retail shops. As a rule, its 6 million visitors a year stay within the resort.

"As far as we can tell, they drive to the casino and then drive back," said Kent Gardner, director of the Rochester study.

Retail operations at the two Seneca casinos rang up $58 million in sales last year, all tax free.

"It's the intent of the casino to hold onto its visitors, and this casino does a good job of that," Gardner said. "When people get hungry, they don't want them hitting the streets."

So what about the new hotels, restaurants and shopping centers Gov. George Pataki and others promised when he signed the law authorizing casino gambling?

"Thousands of additional jobs will be created outside of the casino walls as investors build new hotels, restaurants, shopping centers and businesses," Charles Gargano, Pataki's top economic development aide, predicted then.

An overstated promise?

Or a benefit still to come?

Four years after Gargano made that pledge, there are no new hotels and no major restaurants. And certainly no new shopping centers.

To help spur development, Pataki formed the USA Niagara Development Corp. and offered another promise, a pledge to turn downtown Niagara Falls into Times Square.

"We're still at the beginning of the beginning," said Christopher Schoepflin, president of USA Niagara. "The true impact of the casino is still in its infancy."

So far, development around the casino consists of an $18 million conference center, a $22 million upgrade in an existing hotel, a $7 million renovation of the historic United Office Building and a largely cosmetic makeover of downtown's Third Street.

There are plans for more. But right now, they're just plans.

Niagara Falls Redevelopment, a private partnership buying property east of the casino, unveiled an $800 million redevelopment strategy last year but has yet to build anything downtown.

"We view the casino as a positive," company Vice President Roger Trevino said. "It gives us a 24-hour-a-day, 365-day-a-year economy, which was not present before."

Trevino thinks the casino eventually will create niche markets that will lead to private development outside the casino resort.

The question remains, when?

Eating our own

In tourism circles, people talk about "cannibalism." The theory is that a community has only so much money to spend, so a new attraction might eat away at an existing one.

And that's the fear with Seneca Niagara and, even more so, with a new casino in downtown Buffalo.

Will a Buffalo casino take away from Chippewa Street or Elmwood and Hertel avenues?

Will it eat away at the Buffalo Sabres or Shea's Performing Arts Center?

"I don't see it complementing downtown, I see it competing," said local developer Paul Ciminelli. "Economically, it's a bad deal."

Tourism officials say there's no concrete evidence of "cannibalism" in the Falls, but restaurant owners disagree.

By now, many in the Falls know the story of Macri's Palace, the Pine Avenue institution that shut its doors last June and moved to Wheatfield. Owner Gary Macri was public in his criticism of the casino's competitive advantages, most notably free drinks and tax-free food, and a policy that allows smoking. "There seems to be an unlevel playing field," said Dominic Colucci, owner of the Como Restaurant, another Falls institution. "It's been very detrimental to the smaller restaurants and bars around town. People only have so much money to spend."

The other 800-pound gorilla is the Seneca Niagara Hotel, the city's first world-class luxury inn. It contains a spa, salon and enough meeting space to accommodate banquets, trade shows and conventions of up to 2,200. And believe it or not, competitor David Fleck wishes there were five Seneca hotels.

Fleck owns the Howard Johnson Hotel on Main Street and, while disappointed with the lack of new restaurants downtown, he's ecstatic about the growth in his own business, especially during the slow winter months.

"There's enough for everyone," said Fleck. At the Falls' larger attractions, venues like Maid of the Mist and Cave of the Winds, the Seneca Niagara casino is welcome, but viewed with skepticism.

Sure, ticket sales at the Maid of the Mist jumped 6 percent last year, but no one at the company sees a link to Seneca Niagara.

"There's been no spike at all in our business because of the casino," said Tim Ruddy, vice president of marketing. "But it's one more element, and the more reasons you give people to come here, the better."

One of the tradeoffs a city hopes for when it hosts casino gambling is more tax revenue.

The hope is that it may come in the form of higher property tax collections because of nearby development and growth. Or maybe increased sales or bed tax revenue because of more people spending money on hotels, restaurants and stores.

None of that happened in the Falls.

No new development

In 2000, three years before the casino opened, the city collected $22.2 million in property taxes, $12.5 million in sales taxes and $1.3 million in bed taxes.

Six years later, three years after the casino opened, the city's tax collections are virtually flat.

Sales tax and bed tax collections still hover at about $12.3 million and $1.2 million a year.

The city also raised tax rates each year, which helps account for a $4 million increase in property tax collections.

The reason, of course, is the lack of a new tax base, although speculation has fueled an increase in some values downtown.

In short, no new development, no new tax revenue.

"We all thought there would be more interaction with the casino," Mayor Vince Anello said. "I have to say, the spin-off impact hasn't been great."

Should the city and state have known better?

The state's own consultant issued a separate study on the idea of a casino in Rochester and warned of the perils associated with casinos that have their own restaurants and hotels.

"We've seen only a minor impact on tourism," said David Rosenwasser, president of the Niagara Tourism & Convention Corp. "Long term, I think the casino will help. Short term, people took some hits."

The one benefit casino supporters can legitimately crow about is jobs. Seneca Niagara is flush with opportunities.

At last count, 3,052 people worked at the casino. The Senecas' payroll is upwards of $85 million, and a full-time employee earns an average of $28,000 a year with $8,400 in benefits.

"They're probably the second-largest employer in Niagara County," said Schoepflin, of USA Niagara. On top of that, the casino and its employees spend money that creates even more local jobs. Again, a state consultant estimates that number at about 1,000, many of them with the 600 vendors and companies that do business with the casino.

"Our employees live in every area of the region and feed money back into the local economy," Seneca President Barry E. Snyder Sr. said in a statement last week.

The question is: How many of those 3,000 jobs are new jobs, given the large amount of local money spent at Seneca Niagara?

Even casino supporters concede that some replaced jobs that disappeared when local residents started spending at Seneca Niagara instead of the local bar or restaurant.

In a study for the state, a consultant estimated 600 of the casino's 2,100 jobs replaced lost jobs.

If that trend is true today, 2,200 of the casino's jobs are newly created jobs. Critics think the number is much lower.

The other boon to the city is the growth in its share of the casino's slot machine take.

In 2003, the city's share was $9.8 million. In 2005, it's expected to be $13 million.

Not a bad sum, unless you compare it to what the state gets. In just three years, Albany took in three times as much as the city, or about $100 million.

One thing is certain. Seneca Niagara generates a lot of cash. As Snyder said last week, the casino is one of the region's leading "economic engines."

The question remains, where will it take us?

e-mail: pfairbanks@buffnews.com