NY subway riders face service cuts, more fare hikes

By Joan Gralla

NEW YORK (Reuters) - New York City subway riders and motorists could have to pay higher fares and tolls and endure service cuts to close the state mass transit agency's growing budget gap, officials said on Monday.

The biggest U.S. mass transit agency has already begun planning to raise tolls and fares by 8 percent. On Monday, it listed an additional 1 percent increase and asked its staff to recommend deeper cuts than the 4.5 percent reductions previously planned.

Another remedy, charging drivers tolls on what are now free East River bridges owned by New York City, should also be considered, Gene Russianoff, a transit advocate with the Straphangers Campaign, told reporters after a meeting of the Metropolitan Transit Authority's finance committee.

The agency, unlike the city, already charges tolls on its East River bridges and tunnels, and everyone should bear the pain, Russianoff said.

Local news reports, including Sunday's New York Post, said a commission report due December 5 might propose charging drivers a $5 toll on the city's East River bridges to raise $1.5 billion.

The agency estimates next year's budget gap at $1.2 billion, a $300 million increase from its July forecast because the economy's slide has splintered its share of corporate and real estate tax revenues. An agency official noted its debt service will balloon to $2 billion by 2012.

Neither the city nor the state appear able to afford an increase in aid.

"Addressing the fiscal challenges facing the MTA and the state over the next several years will require shared sacrifice, difficult choices and cooperation from all funding partners," Democratic Gov. David Paterson said in a statement.

Like many transit agencies around the nation, the MTA is re-examining equipment leases that used insurer American International Group as a counterparty.

Because AIG's credit rating has been downgraded despite a federal rescue whose cost has climbed to $150 billion, the MTA has terminated one deal with the company and is looking at several others, including one with Ambac Financial Group, said Gary Dellaverson, chief financial officer of the MTA.

Over the next couple of years, the agency likely will have to pay 6.5 percent interest rates on new bonds it sells, up from 5 percent, Dellaverson predicted.

(Reporting by Joan Gralla; Editing by Dan Grebler)