SARATOGA SPRINGS - It may seem Saratoga Springs has hit the jackpot, as revenue from the Saratoga Gaming and Raceway's 1,700 video lottery terminals continues to roll into the city's bank account.

But even as the money accounts for an ever-increasing chunk of the city's income - as much as 10 percent of the proposed $37.8 million general fund proposed for 2008 - it is surrounded with uncertainty and has become a source of tension for those deciding how to spend it.

The money is guaranteed to the city by state law, but Gov. Eliot Spitzer has the ability to use special legislation to redirect those funds into the state's budget - something he attempted in 2006.

That attempt was overridden by votes in the state Assembly and Senate after state leaders were lobbied by local officials who argued on behalf of Saratoga Springs.

But officials with Spitzer's office said they may be forced to make another attempt to seize the VLT revenue when Spitzer pitches his budget in early January.

"We recognize that Saratoga and other communities may face difficult budget challenges, but the state is facing a tough fiscal situation next year," said Matt Anderson, a spokesman for the governor.

No decision has yet been made, but Anderson, citing a projected $3.6 billion gap in the state budget, said there are "no guarantees."

That's bad news for local officials pushing several big ticket items on the city's wish list, including a $17 million public safety building and a new fire station.

Gambling revenue is guaranteed to come to the city through 2008, but any new city facilities - like a public safety building - would need to be financed over a period of several years and would also add to the city's annual operating costs once constructed.

City officials will discuss Tuesday how best to handle the expenses during a public hearing on the budget and during the City Council meeting.

Mayor Valerie Keehn said even if the state successfully pulled the VLT money from local authorities, the projects should go forward, financed either by new paid parking revenue or other "creative city fees."

But the VLT money - particularly as mortgage tax revenues are falling and sales tax revenues stagnate - is important, Keehn said.

She said she is already reaching out to state budget makers to emphasize the need to keep the money local.

"I believe we made our case last year that, as a municipality, we should be compensated," she said, citing the strain the gambling facility places on the city's infrastructure.

This is the second year the city coffers have benefited from profits through the gambling devices.

Since opening in 2004, revenue has increased each year at the gambling center - one of eight in the state and the only one in the Capital Region. In addition, a $15 million expansion that increased the total number of VLTs at the racino to 1,700 was completed in June.

Profits from the video gaming machines at the 100,000-square-foot facility have already exceeded $100 million in 2007, according to the New York Lottery. That's a 7 percent increase from the same period in 2006.

Though the state predicts net machine income at Saratoga will reach $145 million this year, Finance Commissioner Matt McCabe said the state has warned him not to expect an ever-increasing rise in revenues,

"I'm not going to adjust numbers on paper just to make things look good," he said. "It's going to hit you later. Before you know it, you'll be scrambling to meet mandatory expenses."

McCabe, who is not seeking re-election, said he included no new capital projects in his 2008 budget because of those uncertainties and the difficulty of just covering extant operating costs.

Accounts Commissioner John Franck is similarly concerned about covering the basics.

"I've been chastised and attacked on this, but it's just too much," he said, referring to projects included in the city's six-year capital budget plan, which he said could cost more than $60 million in the first three years.

"I'm not saying these things aren't needed," Franck said. "There are many items on this list that are important, but some may have to go. We can't tax people to death."

Public Safety Commissioner Ron Kim, a strident proponent of investing in the public safety building now, said while he is open to using other revenue sources, the VLT money is a "bird in the hand."

Though acknowledging the uncertain nature of the revenue stream, he said all of the city's income sources are bound to fluctuate.

"We all have to live in an uncertain world," Kim said. "All the tax revenue is uncertain. If people quit buying, sales tax revenue is a risk. We still have to do these things. We still have to go forward."

The City Council must approve the budget by Nov. 30. If council members cannot come to an agreement, McCabe's proposed budget will be adopted as is.

Though the controversy over the new public safety building - and methods for financing such projects - have been debated by candidates fighting for seats in next month's elections, newly elected officials would not take office before the 2008 budget is adopted.

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