NEW YORK (AP) – The city’s Off-Track Betting Corp. was the subject of intense 11th-hour negotiations Friday as the state and city remained at odds over a proposed state takeover of the financially troubled operation ahead of a Sunday deadline to shut it down.

Gov. David Paterson had announced the plan earlier in the day, pledging to save 1,500 jobs on the brink of being eliminated this weekend. But Bloomberg responded that unless certain “outstanding issues” were settled, the city would go ahead with its plan to shutter the city’s 60 OTB parlors on Sunday.

Paterson’s office called the city’s objections “distressing,” saying the plan addressed Bloomberg’s desire to stop subsidizing a gambling operation that has lost millions of dollars a year.

The agreement with state legislative leaders was hammered out in the shadow of Sunday’s deadline, which Bloomberg had imposed.

After Paterson’s announcement, the mayor issued a statement saying “substantial legal and economic issues” still needed to be resolved. The mayor said that unless those issues were settled, the city would have no choice but to go forward with its original plan to close OTB on Sunday.

However, he said, “We hold out hope that a satisfactory solution can be reached.”

The unresolved questions include whether the city or state would collect a surcharge on OTB bets, and how OTB’s bills would be paid during the 90 days the state plans to spend creating a new entity, according to a City Hall official who spoke on condition of anonymity because the negotiations were continuing.

Paterson’s office said it wasn’t reasonable for the state to take over the city OTB’s expenses but still send the surcharges to the city.

Paterson said shutting down OTB would have a “devastating impact,” throw 1,500 people out of work and affect the horse racing industry statewide.

The aim is “to build what we think would be a workable, a sensible, an achievable way in which we can conduct horse racing in the state of New York into the future,” the governor said.

As the news spread at an OTB parlor in midtown, Tamu Siobis said he would be happy to have a place to bet in the future – even though he had just lost $80 on wagers.

“If they closed, I would have written a letter to the government saying it’s better to stay open. I come here and I forget my problems,” he said.

OTB takes in about $1 billion annually in bets but has been struggling for years. Bloomberg has said he didn’t want to spend scarce city resources to keep a “bookie” operation in business.

Paterson said he was also “mindful of the state taking on financial risks” in a shaky economy. But he said he was confident the state could make the betting operation profitable.

Plans call for moving the city OTB’s headquarters from Times Square to the Aqueduct race track in Queens, which Paterson’s office said would save $5 million per year in rent. The state also expects to save money by eliminating overlapping functions of the city OTB, five OTB branches around the state and the New York Racing Association.

Assembly Speaker Sheldon Silver said Friday the state comptroller’s office would audit OTB’s operations while streamlining its management.

OTBs were created in 1970 to generate public money and to thwart private bookies.

Off-track betting technically makes a profit, but it is legally obligated to hand over so much money to the state that it runs a deficit.

Between 1997 and 2001, the city received an average of $11 million a year from OTB. That number fell to just $1 million in 2002, and the city got no money in 2003 and 2005, according to a report by the city comptroller.

Last year, the city OTB reported a $13 million shortfall. Its directors, appointed by Bloomberg, voted in February to close it down.

While OTB has been a money-loser for the city, it’s valued by bettors like Elvira Fontalto. The 68-year-old retired hotel worker and cancer survivor said her three daughters pooled money to give her $100 a week to wager at OTB.

“It’s relaxing,” she said.

AP-ES-06-13-08 2047EDT