The Port Authority and bus-trolley operators have failed to reach a new labor agreement through the state-supervised fact-finding process.

For now and probably for a while, the transit system, which provides more than 240,000 rides a day, will continue normal operations, and the 2,300 members of Local 85, Amalgamated Transit Union, will continue working under terms of the old contract that expired June 30.

The authority board yesterday formally rejected a report by a neutral fact-finder, Robert Gifford, a State College attorney appointed by the Pennsylvania Labor Relations Board.

Chairman Jack Brooks said while the report could be the basis for further talks and a future contract, "it does not generate enough savings to warrant its acceptance." In addition, he said, courts have decided that a provision to increase benefits (by up to 6 percent) for more than 2,000 retirees would be unlawful.

The report recommended higher employee health insurance co-payments, a 1 percent share of pay toward premiums and a 0.5 percent increase in pension contributions. But wages would be hiked a total of 4.5 percent and cost-of-living increases could be 30 cents an hour in a three-year contract.

Local 85's executive board voted last week to reject the fact-finding report, but the rank-and-file neither had an opportunity to vote nor to question union leaders at membership meetings like those held in past years.

Local 85 asked for an extension to yesterday's 5 p.m. deadline for both sides to accept or reject the fact-finding report in its entirety, telling the labor relations board that it was unable to find a suitable meeting hall for yesterday.

The matter became moot when the authority board unanimously rejected the report.

On behalf of his colleagues, Brooks directed management's bargaining team to contact Local 85 and attempt to restart negotiations before a state-appointed mediator.

Local 85 now has the legal right to strike, a step the union took in 1992 when employees shut down the system for 28 days. It took the courts to settle the bitter dispute.

Binding arbitration also is a possibility, if both the authority board and union agree to it. Past boards have never looked favorably at binding arbitration.

Local 85 President-Business Agent Patrick McMahon refused to comment.

Attorney Dennis Veraldi, who started a week ago as the authority's acting chief executive officer and who has served as chief legal counsel for years, said there is no time limit on negotiations.

"We have full confidence that the parties will keep working together. We don't see a strike happening, but that's not our call," he said. "We don't see how a strike would benefit anyone."

The Port Authority's $319.8 million operating budget for the fiscal year that began July 1 -- a budget propped up with $45 million in federal funds "flexed" from roads to transit -- was based on achieving $19 million in savings and union concessions.

Although he said the authority "needs to go further" and save more money than the fact-finding report recommended, Veraldi was unable to provide estimates.

The authority initially wanted a four-year contract with wage freezes in the first and second years and 1 percent wage increases in the final two years. It also wanted to contract out traditional union work and raise employees' health care contributions significantly above what the fact-finder recommended.

Pay for top bus-trolley operators is now frozen at $21.53 a hour, and for top mechanics at $22.79 an hour.