Despite more state funding, record bus and trolley service cuts and increased fares during the past 12 months, the Port Authority is sounding another budget alarm.

Officials said yesterday that unless $20 million a year in savings can be achieved through collective bargaining agreements with unions, transit riders face more cuts and fare increases in the near future.

"Anybody who thinks we can wish our way out of this is ill-advised," authority Chief Executive Officer Steve Bland said. "If we don't bring [health care and pension costs] under control, employee benefits will exceed wages in a few years. It's mind-boggling."

Negotiations have been under way for several months with the largest union, Local 85, Amalgamated Transit Union, whose contract covering about 2,400 bus-trolley operators and other hourly employees expires at midnight June 30. Much smaller contracts come due a year from now with the International Brotherhood of Electrical Workers and the Port Authority Transit Police Association.

Little progress has been reported in the talks between management and Local 85. If there's no settlement 10 days from now, a series of mandatory steps will go into effect, starting with a fact-finding process that takes several months. A strike would be a last resort, would have to be authorized by the Local 85 membership and would not be expected to occur before fall.

The $350.3 million 2008-09 fiscal year operating budget recommended by the authority board's Planning and Development Committee is expected to be ratified by the full nine-member board next week.

It calls for a 4.3 percent spending increase, despite counting on a minimum of $10 million in union concessions for the final six months -- an indication that management does not foresee reaching a contract with Local 85 soon.

The $10 million would translate into $20 million in concessions for each subsequent fiscal year.

Officials attribute the increased spending to a growing number of employees retiring, most of them in their 50s; lifetime health care costs that continue to go up; higher pension costs; and soaring energy prices. The authority has budgeted $4.15 a gallon for diesel fuel, or $34 million total, almost twice as much as the current year, when it locked in a price of $2.28 a gallon in a long-term contract.

Meanwhile, state funds from the Act 44 transportation funding legislation passed by the Legislature last July are to provide $184.5 million to the authority for fiscal 2008-09. Officials said state funds will be slightly less in future years because of how the distribution formula was set up, leaving the authority with few options.

The new budget retains fares, service and employment at current levels and assumes the county will provide $27.7 million as a 15 percent matching share for the state money.

County Chief Executive Dan Onorato has withheld this year's share, forcing the transit agency to borrow from its capital budget. He also has vowed to withhold the 2008-09 share until the authority hammers out a labor contract that eliminates pension and health care benefits he has characterized as "outrageous."

"I don't get as excited about the budget as I used to," Local 85 President-Business Agent Patrick McMahon said. "They play the 'blame game' every year and we're always the bad guy."

He criticized recent actions to hire a long-term planning director at a salary of $91,200 and a board recommendation made earlier this week to hire three lobbying and "government services" firms for up to $400,000 a year despite already employing a Washington, D.C., firm for the same purposes.

"That's more than a half-million dollars right there," Mr. McMahon said. "When we lobby, we go to Harrisburg and Washington ourselves."

Besides Mr. Onorato, the Port Authority board and administration have the support of the Allegheny Conference on Community Development for an agenda of reform, restructuring and cost containment.

"Living within your means and continually improving your product is something that successful businesses do year after year," said Ken Zapinski, senior vice president for transportation and infrastructure for the conference, representing more than 300 regional corporate and business leaders.

"Port Authority drivers are the highest-paid in the country when adjusted for regional variances in the cost of living. And the level of benefits in their health care package is unparalleled in the public or private sector."

If the authority fails to achieve $10 million in labor savings for the 2008-09 fiscal year, and $20 million in following years, Finance Director Claudia Allen said, service could be cut up to 10 percent sometime next year with "larger and larger" cuts in succeeding years.

In addition, she said, fares would have to be increased up to four times the rate of inflation to compensate for budget shortfalls.

Health care costs that amounted to $35.3 million in 2003 are projected to cost $67.8 million for the next fiscal year. Pension expenditures that amounted to $1.7 million in 2003 are projected to be $16 million for the next fiscal year.

Ms. Allen laid out future budgets that show the authority's deficit growing to $81 million five years from now with flat funding, without additional savings in health care costs, pensions, wages and salaries, and without changes in union work rules to enable management to increase service efficiency.