INDIANAPOLIS | East Chicago's claim on millions of dollars in casino payments will be heard Thursday morning before the Indiana Supreme Court.

At stake is whether the city has the right to decide for itself how local development payments from the Ameristar casino should be spent.

The Foundations of East Chicago, a nonprofit organization, was designated as a recipient of casino revenue in the 1995 local development agreement between East Chicago and the casino.

Money given to Foundations of East Chicago was supposed to be used to improve housing and infrastructure in the city.

However, a 2006 Times investigation revealed Foundations of East Chicago was spending nearly one-third of its annual casino revenue, or some $2 million a year, on lavish salaries for its board of directors and staff and on promotional materials.

In 2007, the General Assembly approved a state law giving East Chicago the authority to take Foundations of East Chicago out of the casino agreement and decide for itself how to spend that local development money.

The Supreme Court will decide whether that law is constitutionally valid.

The Indiana Court of Appeals upheld the law in April, ruling that not only is the law constitutional, but that East Chicago was free to change casino revenue recipients even without the 2007 law.

"In other words, the (casino) is obligated to support the community at a certain level, but it is left to the East Chicago Common Council to determine the identity of the payee(s), and the council has the authority to pass a new ordinance changing the identity of the payee(s) at any time," Chief Judge John G. Baker wrote in the appellate court decision.

Foundations of East Chicago appealed that ruling to the Indiana Supreme Court, contending the Legislature does not have the power to authorize a city to unilaterally rewrite a valid contract.