Another fare increase could be on its way for New York's Metropolitan Transportation Authority as it grapples with falling revenue and increased costs that are pushing $2.7 billion of projects into the 2010-2015 capital plan.

"We are facing a crisis in our capital funding," executive director Elliot Sander said yesterday following finance committee meeting. "We remain hopeful that revenues will rebound and that subsidies will increase but if they do not we will have to consider fare and toll increases and ... service cuts."

Sander said he was looking forward to working with a commission headed by Richard Ravitch that is looking into the MTA's funding problems.

"We are facing a $15 billion to $20 billion shortfall with our proposed capital program," Sander said referring to the 2010-2015 capital plan. "If the trends continue we will be facing a [operating] budget deficit of more than $500 million in 2009."

The authority will present its proposed 2009 operating budget next month.

The finance committee yesterday heard a presentation on an amendment to its 2005-2009 capital plan that would increase capital spending by $1.12 billion to $23.71 billion. The authority will vote on the amendment next month.

The main reason for the increase is the addition of $1.03 billion of new federal funding for the East Side Access project that will connect the Long Island Railroad to Grand Central Terminal and the new Second Avenue Subway line.

At the same time, the amendment would defer some $2.7 billion of projects due to construction cost escalation. Among them is the rehabilitation of 19 subway stations to save $279 million. Sander said he expects the deferred projects to be included in the MTA's 2010-2015 capital program which will be proposed next year.

The continuing deterioration of the real estate market is cutting into the MTA's bottom line as dedicated real estate taxes continue to come in below budget. Those taxes, which include taxes on commercial and residential real estate transactions in the areas in New York served by the MTA, came in $40.9 million below budget this month. The MTA's real estate taxes reflect transactions from the previous month.

Year to date, the MTA is $121.8 million below budget. It has received $526 million of dedicated real estate taxes so far this year, which is $121.8 million below budget and considerably lower than the $837.1 million that it had received this time last year.

As high gas prices hit drivers' pocketbooks, subway ridership has increased slightly bringing farebox revenue up to $879 million in May, $11.4 million above budget. However, tolls collected at the authority's bridges and tunnels declined slightly to bring in $514 million in May, which was $2.2 million below budget.

The MTA is still trying to figure out what the downgrades last week of MBIA Insurance Corp. and Ambac Assurance Corp. by Moody's Investors will mean for its outstanding bonds. "I don't want to talk about that right now," MTA chief financial officer Gary Dellaverson said. "It's another issue and we're confronting it."

Moody's downgraded its triple A ratings on both insurers to A2 with a negative outlook in the case of MBIA and Aa3 with a negative outlook in the case of Ambac.

Dellaverson said the authority is in active review of its variable-rate debt insured by those two insurers with its financial adviser, Goldman, Sachs & Co.

Meantime, the authority plans to refund today $352.9 million of variable-rate demand bonds issued in 2005 on its dedicated tax fund credit that carry XL Capital Assurance Inc. Fitch Ratings downgraded XL to A from triple-A in January, triggered higher fees by Citi, which had a standby purchase agreement on the bonds. Those bonds had reset at 3.0% at the beginning of the year, but shot up to 4.02% on Jan. 31, and by the end of March the rate was up to 10% where they have stayed.

Citi is the remarketing agent on the transaction and an interest rate swap with Citigroup Financial Products, Inc. will remain in place.

Dexia Credit Local will be provide a standby purchase agreement and Financial Security Assurance Inc. will insure the deal.

Nixon Peabody LLP is bond counsel and Goldman, Sachs& Co. is financial adviser.

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