A rescue plan for the cash-strapped Metropolitan Transportation Authority appeared to be headed for derailment yesterday after New York Senate leaders proposed measures intended to address the agency's $1.2 billion operating deficit but not its long-term capital needs. Gov. David Paterson said the Senate's plan was unacceptable.

Senate Majority Leader Malcolm Smith, D-Queens, yesterday proposed a fare increase of 4% and imposing a 0.25% payroll tax on employers in the counties the MTA serves. Smith, however, rejected tolling currently free bridges on the East River and Harlem River, a controversial measure that was opposed by some democratic Senators in districts that would have been affected by the tolls.

A commission appointed by Paterson last year proposed increasing fares by 8%, imposing a 0.33% payroll tax, and tolling certain bridges to address the authority's operating and long-term capital needs. The Assembly signed off on a modified version of that plan.

Smith said the Senate Democratic majority could not approve capital funding because the MTA's 2010 to 2014 capital plan would not be approved until the fall.

"Not knowing what the MTA's plan is at this point calls into question us giving them a blank check - we don't want to have an AIG situation with the MTA," Smith said, referring to American International Group Inc.'s recent bailout and controversy over its employee bonuses.

Smith said the capital plan for the MTA should be paired with road and bridge capital spending in upstate New York and Long Island and that he expected a resolution by the end of the legislative session in June.

"We will treat upstate and Long Island as equal partners to New York City; this plan does not provide for that," Smith said.

Paterson rejected the idea that the capital plan should be worked out before new funding streams are secured.

"You need to know what your revenues are to put a capital plan together," Paterson said at a press conference in Manhattan. The governor said that Smith was wrong that the MTA's capital plan wasn't tied to Upstate and Long Island capital transportation spending because the Legislature works the plans out at the same time.

Paterson said he would work with lawmakers to find a comprehensive funding plan that includes both the operating and capital needs of the MTA.

"The solution must be taken now," Paterson said. "We must be able to put this plan to bed at this time. We have a [state] budget that has a $14.2 billion deficit looming right in front of us, and pushing problems off into the future is only going to ... create all kinds of hardship."

The MTA projected that it could sell about $17.5 billion of bonds over the next six years using the new revenue streams provided under the governor's proposal, including $2.3 billion in the current year.

Richard Ravitch, the former MTA chairman who Paterson tapped to head the governor's commission, said that the Senate proposal stripped out one of the key provisions of the governor's rescue plan, a lockbox on revenues to support debt service.

"If the MTA ever has enough [money under the Senate plan] to use any of it for capital purposes, by not putting it in a lockbox they're going to increase the borrowing costs of the MTA," Ravitch said. "If it doesn't go in a lockbox, you won't get the same credit rating as you would if you did and what that differential in rate is in this crazy market I can't tell you, but its tens of millions of dollars a year."

The governor's proposal, which was based on the Ravitch commission's recommendations, would create a new authority that would issue bonds backed by the new revenue streams.

"To the extent that you can isolate operating pressures away from bond holders the better it does yield a benefit in terms of credit quality," said Scott Trommer, senior managing consultant at Public Financial Management Inc.

The MTA has said it will have to raise fares and tolls by 23% and slash services if a rescue package is not approved the Legislature by March 25.

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