Port Authority board members yesterday learned a big reason the agency is in such dire financial straits: retiree health benefits.

A report by a specialist, Human Resource Consulting, said the authority will have to pay $26.7 million this year to provide 2,098 retirees and 1,627 surviving spouses with health insurance, including payments of Medicare Part B premiums, plus dental, vision and $5,000 of life insurance.

The firm projected the annual cost of medical benefits will grow to nearly $50 million by 2017 for retirees alone.

The "Post-Employment Benefits" report (excluding pensions) by the consulting firm concluded:

"For the Port Authority, this is the first public statement of the magnitude of these liabilities." It noted that the "liability is large relative to current expenses" and the future unfunded liability could impact the authority's bond ratings, making short- and long-term borrowing more expensive.

When health care costs for retirees and spouses are added to those for 3,178 current management and union employees, the tab this year will approach $65 million, or about 20 percent of the authority's operating budget.

"It's an ongoing problem because it continues to take up a greater share of the budget," Chief Financial Officer Claudia Allen said.

She also said age has become a factor, inasmuch as employees can retire after 25 years of service. The authority picks up full health care costs until age 65, when Medicare kicks in, and then it pays for supplemental insurance.

The average age of 1,020 retired employees is 58 and the average age of 1,019 spouses is 56, putting them in the "pre-Medicare" health care cost category. In addition, 519 active employees are currently eligible to retire.

"It puts a bigger burden on the authority until they reach age 65," Ms. Allen said, noting that not all public transit systems offer such a generous package. The medical benefits have been negotiated in union contracts. Nonunion employees and administrators have typically received the same deal.

The growing number of past and present employees has raised the authority's cumulative, long-term health care liability to $703 million for the next decade. The information was developed to satisfy new federal reporting requirements.

"That liability is a concern in financial markets who look at the growing liability and want to know how we're going to deal with it," Ms. Allen said. "It affects our ability to borrow money and the amount of interest we pay."