Nearly everybody thinks resort casinos in a bucolic mountain setting 90 miles from New York City is a good idea. So will they ever get them?

It’ll be a hot topic in Saratoga Springs later this month when leaders from the commercial, tribal and pari-mutuel sectors gather with lawmakers and legal and financial experts and regulators and others from the governmental side for the eighth annual New York Gaming Summit.

In Albany they’re staring down a state budget deficit projected at $17.9 billion for the upcoming fiscal year, and they’d like nothing more than to see a few billions of private money invested in the Catskills in a bid to restore the region to glory as a destination of choice for that mass of humanity down at the mouth of the Hudson River.

“The state is in desperate financial condition because the plans for Aqueduct have been delayed,” says Joseph M. Kelly, a professor of business law at SUNY Buffalo and an associate of Catania Consulting Group, specialist advisors in the gaming sector. “New York state had counted on a lot of revenue, and that didn’t happen.”

This means casinos - specifically, Indian casinos, the only kind that can be construed as legal in New York. It’s been decided by the Legislature that three would be about right. And if they were up and running today, assuming a combined investment of $2.5 billion, some recent expert research says that by 2011 they’d be generating $600 million a year in gambling revenue. That’s almost two-thirds of what New York’s eight racetrack casinos won last year. It’s more than the 2008 win of all the racinos in any single state save New York, Pennsylvania and West Virginia. And this is considered a conservative estimate.

“The Catskills can easily hold two or three casinos, it’s such a potentially lucrative market,” says Kelly. “You’ve got all those people in New York City who’d much rather go to the Catskills than Atlantic City. And it would bring back New Yorkers you’re losing right now to Pennsylvania.”

So if you’re the state of New York and you can cut revenue-sharing deals with three Indian tribes like you cut with the Oneida Nation at Turning Stone and the Seneca Nation of Indians for their casinos in Buffalo and Niagara Falls - and you’d be in a strong position to do so since no Indian tribe actually has land in the Catskills - you’d be looking at collecting, conservatively, more than $100 million a year, and that’s just for starters. And if you were the Senecas you’d probably agree to it. In fact, the tribe is already partnered up with a Pink Sheets company called Rotate Black out of Petoskey, Mich. Rotate Black (ROBK) has grand plans for the old Borscht Belt. The tribe even has promised to pay Sullivan County a fee of $15.5 million in the first two years the casino is open and $20 million a year for five years after that.

Yet there are obstacles standing between New York and all this money. The land issue is one of the biggest. It was all but impossible to get approvals from the Bush administration to take land into trust for gaming. In 2008 the Department of Interior under Secretary Dirk Kempthorne rejected 22 applications for off-reservation casinos. Three of them were for the Catskills.

Describing casinos as “critical economic developments” Gov. David Paterson wrote Interior Secretary Ken Salazar asking the department to reconsider the Catskills land-in trust applications. The Kempthorne rejections, he said, were “misguided”.

Waiting on "favorable"

Five tribes, counting the Senecas, have an active interest in the region at present.

Wisconsin’s Stockbridge-Munsee Community, with a population of about 1,500, has a Class III casino in Wisconsin and a claim on ancestral lands in the Hudson Valley which they agreed to settle in exchange for a Class III compact in New York. They don’t have the compact, but they do have a partner, Trading Cove Associates of Waterford, Conn., the money guys who developed Foxwoods. Their land-in-trust applications was one of the Kempthorne rejections.

Also rejected was an application by the St. Regis Mohawk Tribe, whose efforts to get a casino in the Catskills, dating back to the mid-’90s, approach the status of legend. The St. Regis are one of the historic Six Nations of the Iroquois Confederacy, they number about 11,000, and they occupy a remote reservation straddling the New York-Canada border west of Lake Champlain where they operate a Class III casino and a bingo hall. Hoping for better luck with the Obama administration they’ve resumed talks with their on-again, off-again partner, Empire Resorts, operators of the harness track and VLTs at Monticello Raceway where the casino is to be located.

“We’re trying to position ourselves so if favorable things happen we can renew our project,” says Chief James Ransom.

As things stand they’ll need all the “favorable” they can get. Publicly traded Empire (NasdaqGM: NYNY) was wrestling with solvency issues as of its last 10-K filing and is in the midst of a restructuring. The company has posted a net loss for five years running. Revenues were down last year, as they were the year before. The company had less than $10 million in cash at the end of 2008 against more than $81 million in current liabilities. Empire did not respond to requests for comment.

Then there is the 4,000-member Seneca-Cayuga Tribe of Oklahoma, which had a partnership with Empire at one time. They operate a Class II casino in Oklahoma and manufacture their own brand of cigarettes. They don’t have a compact with New York, and their attempts to assert a legal claim to land in the Catskills have not been successful. Their land-in-trust application was rejected.

There is finally the Oneida Tribe of Indians of Wisconsin. Gov. George Pataki, father of the Stockbridge-Munsee deal, reportedly agreed to negotiate a Class III compact with this group based on their claim to homelands in New York. They have a Class III casino in Wisconsin, and they have a partner for their New York bid, the well-known Baltimore developers Cordish Companies.

The fact that Salazar has taken a public stand against the Supreme Court’s controversial decision in Carcieri - “very disappointed” is how a spokesman described him - gives proponents of off-reservation gaming hope.

Sullivan and the Senecas

Just a couple hours’ drive from New York City, in the County of Sullivan, they’re hot for the jobs and economic benefits casinos and their supporting hotels and tourist attractions are expected to bring. Tourism already generates more than $290 million annually in the county and employs about 4,000 locals. This means a lot to a region where the jobless rate has almost doubled since 2007 - at the start of this year it stood at 8.6 percent -and home foreclosures are at a 10-year high.  The county endorses both the Mohawk and Stockbridge-Munsee projects and wants the state to exert all the muscle in Washington it can to get things moving.

Gov. David Paterson is on board. Describing the casinos as “critical economic developments” he wrote new Interior Secretary Ken Salazar in April asking the department to reconsider both tribes’ land-in-trust applications.  The Kempthorne rejections, he said, were “misguided”. Charles Schumer, one of the state’s U.S. senators, was a step ahead of him. He phoned Salazar in February. “I was disappointed in Secretary Kempthorne’s unfortunate decision last year,” he said, “and I hope that with a new administration we have a new way of thinking about applications that are finite, focused, appropriate for the region and have strong community support.”

Neither request mentioned the Seneca-Cayuga and Oneida projects.

Sullivan County’s Legislature has approved an agreement with the New York Senecas for a Class III casino in Bridgeville in the Town of Thompson, 90 miles from the George Washington Bridge. Seneca Catskill Mountains Hotel and Casino, it’s called, and it’s a mega-affair. At 2 million square feet, planned for construction in three phases, ultimately it will house 6,000-7,000 slot machines, 150-190 table games, a 1,500-room hotel, a slew of restaurants and bars, a nightclub, a spa, retail shopping, convention space and a 5,000-seat events center. Rotate Black puts the total cost at $1.3 billion.

But will it get built? That’s a question for CRT Investment Banking, a group of Stamford, Conn.-based specialists in small- and mid-cap financing whom Rotate Black has retained to try to find money in the worst credit market in decades. “We believe the Seneca project is in an optimal position to secure the capital necessary to fund its construction,” CRT’s Managing Director Michiel McCarty said in a prepared statement Rotate Black released last month. “We strongly believe in the vision of the Seneca Nation, the viability of the market and the management of Rotate Black.”

Rotate Black has plans for casinos in Nevada and in Goa in India, but the company hasn’t built or operated anything yet. The Senecas themselves were unable to obtain financing for a permanent casino in Buffalo. In December they laid off a couple hundred workers. In April, Seneca Gaming Corp.’s long-time President and CEO Brian Hansberry.

So will it get built?

The Senecas have neither land nor a compact to operate Class III gaming in the Catskills. The plan is for Rotate Black to transfer to the tribe 63 acres the company purchased last year which the tribe will hold in “fee status,” paying the taxes on it, until they can take ownership. The tribe wants to try to do this through an act of Congress rather than brave the torturous land-in-trust route. They want the state’s support. Indeed, they’ll need it. But they’ve been locked in a long-running battle with Albany over taxes on cigarette sales, and that could be a problem.

Officials for the tribe and Rotate Black did not respond to requests for comment.

So basically everything pretty much depends on the Obama administration, and they’re difficult to read. So far the Interior Department has been silent on the issue of off-reservation gaming. But the fact that Salazar has taken a public stand against the Supreme Court’s controversial decision in Carcieri - “very disappointed” is how a spokesman described him - gives the gaming camp hope. “The department is committed to supporting the ability of all federally recognized tribes to have lands acquired in trust,” the same spokesman said.

The belief is that appointments like that of Larry EchoHawk, a former Idaho attorney general and a Pawnee Indian, to head the Bureau of Indian Affairs speak to a whole new culture in the department, signaling that tribal views on economic development and self-determination will be getting a more sympathetic hearing.

“The incoming administration has certainly demonstrated a willingness to talk to tribes and at least try to understand what their issues are,” says attorney Jerome Levine, a partner in the firm of Holland & Knight and a former corporate counsel for the National Indian Gaming Association. “But we’re still in the early stages so it’s pretty hard to assess that.”

Attorney Mary Pavel, a member of the Skokomish Tribe of Washington, agrees to the extent that it’s impossible to say anything categorical when it comes to off-reservation gaming. “The politics of these things are really driven by local concerns. For gaming I think it is much harder. Every land-in-trust application for gaming has resulted in a lawsuit.”

She would know. As a partner in the firm of Sonosky Chambers Sachse she helped the Huron Band of Potawatomi Indians win a long and difficult battle for a casino in southern Michigan. “You want your application to be bullet-proof, in terms of the environmental impact assessments and everything else. Because of the lawsuits,” she says. “These things are hard to get if the local community is hostile.”

Which is not the case in the Catskills, fortunately.

“New York politics is hard to figure,” she says. “You have this element of the land claims. I don’t know.”

Chief Ransom of the St. Regis Mohawks may be a better judge. His tribe had a development partner, they had a site, their environmental review had been OK’d, they had favorable determinations from the Department of Interior, they had then-Gov. Elliot Spitzer’s support and the support of the Legislature, they had an amended compact signed by Spitzer permitting them to operate Class III gaming, they’d cut the state in for a hefty share of the take, they had the support of the local community and the unions - and they’ve come away with nothing.

“We were at the end of the tunnel,” Ransom says.

“The Mohawks went through all this difficult process,” says Kelly. “They played by the rules, and three minutes before midnight they got told the rules have changed.”

Hard luck has stalked the tribe since 1996 when they filed their first application for trust land at Monticello. Pataki supported them, but they ran into all kinds of opposition, not least from Donald Trump, who had Atlantic City casino interests to defend. They wound up in the courts. Finally in April 2000 their application was approved. But the tribal government promptly dissolved into rival factions, each signing with a different development partner, one of them being casino giant Park Place Entertainment. The original developer sued Park Place. It was a mess.

But in some respects the Kempthorne denial was worse because it was largely based on a policy determination, that off-reservation casinos do not benefit the tribal members back home, and for that there is no real foundation.

“The state Legislature approved three casinos in the Catskills. They knew full well there was no tribe within a couple of hundred miles of the area,” Ransom says. “But they did that because they knew it is an economically depressed area, and they knew these projects would benefit the tribes and the local communities.”

The immediate effect of the rejection was to break up the tribe’s partnership with Empire. “Once they left we didn’t have a project,” Ransom explains, “so we couldn’t sue to overturn the secretary’s decision.”

Earlier this year, Mohawk leaders met with officials of the Interior Department to make their case. They left with no commitment.

“I thought they were very understanding,” Ransom recalls. “But they pointed out to us that they had made no decision. But they would give it serious review.”

Schumer didn’t get much more from his February phone pitch. Salazar was “receptive” was all he could report.

“Hopeful? I don’t know if hopeful is the right word,” says the chief. “We’re still interested. We understand there are many hurdles to overcome. But we’re very persistent and very patient. And we will do everything we can to make it happen.”