It's budget time at the Port Authority, and for the first time in a long time, there's no talk of fare hikes or service cuts or calls for more state funding.

But the budget outlook remains unsettled for two other reasons: union negotiations and Allegheny County Chief Executive Dan Onorato's demand that benefits he has called "outrageous" be reduced before he releases county funding to the transit agency.

"We're at a crossroads," authority Chief Executive Officer Steve Bland said. "[The next labor agreement] will determine where we'll be 10 to 15 years from now. We have to be concerned about our long-term liability and sustainability."

His staff is working on a record $356.1 million spending plan for the 2008-09 fiscal year that begins July 1, an 8 percent increase over this year but one projecting an $8.3 million deficit, partly because 458 employees will be eligible for mostly early retirement for the first time.

Consequently, officials are focusing on reining in escalating health care and pension costs for them and other members of Local 85, Amalgamated Transit Union, which represents active and retired bus-trolley operators, mechanics and service, clerical and supervisory personnel.

The contract for 2,150 rank-and-file members expires June 30. A separate contract covering 175 first-level supervisory personnel expires July 31.

Collective bargaining has been under way for two months. If management and the union fail to reach agreement by the deadlines, state labor law mandates that the sides go through a series of steps, including a fact-finding process that takes months.

"The new budget assumes savings from the collective bargaining unit," Mr. Bland said, reflecting Mr. Onorato's demand for concessions before $27.4 million in county subsidies are released for the current fiscal year or an estimated $28.5 million for the next fiscal year.

Since the county money hasn't been forthcoming, the Port Authority plans to borrow in lieu of it to continue qualifying for state funds, a move that will add interest costs to those from normal short-term loans used to pay bills and meet payroll expenses.

Borrowing for the latter purpose will be lower, however, because this year's budget projects expenses about $10 million less than anticipated. The projection is due to a combination of $4.4 million extra revenue from Jan. 1 fare increases, diesel fuel costs locked in at $2.27 a gallon and health care savings resulting mostly from 400 fewer employees.

"The financial picture is downright rosy compared to where we were last year," Mr. Bland said, when the tentative budget projected a $50 million deficit.

Since then, the state Legislature passed a controversial funding bill titled Act 44, which relies upon raising Pennsylvania Turnpike tolls and converting Interstate 80 to a toll road to raise money for roads, bridges and transit. The same legislation contained a provision that enabled Allegheny County to impose a 10 percent drink tax and $2-a-day car rental tax to subsidize the Port Authority.

Mr. Bland said while Act 44 provides a long-sought source of predictable funding, it wasn't designed to create a windfall for the state's 73 transit agencies.

"Our state allocation for next year will be up about 1 percent, while health care costs alone will be going up 11 percent," he said. "We'll be paying health care for more folks [retirees] without being able to provide more service."

He did not express concern about the county not making the first of its two subsidy payments for the 2007-08 fiscal year in March or about its intent not to make the second one next month.

"The county has never said we won't get the money," Mr. Bland said, but it won't be paid until Mr. Onorato is satisfied that new labor agreements achieve the savings and efficiencies that he demands and bring the Port Authority's labor costs in line with peer agencies.

The 2008-09 fiscal year budget assumes the authority and Local 85 will reach such an agreement and that the county will release a full share of funding "because, without it, we'll be forced to shut down," Mr. Bland said.

Some highlights of the new authority budget under development:

• Because the authority's long-term contract to purchase diesel fuel at the bargain-basement rate of $2.27 a gallon expires at the end of August, fuel costs are estimated to increase by $6.4 million at minimum.

• Providing additional health care for 458 potential new retirees will add $5.5 million to the budget, bringing it to more than $60 million for the year.

• Pension expenses that cost nothing in 2001 because of strong investment results and fewer retirees are expected to reach the $20 million level in 2008-09.

• The total number of management and union employees is to remain steady at about 2,750.