By Joan Gralla
(Reuters) - New York City residents and commuters would face devastating service cuts and fare hikes if a court decision overturning the payroll mobility tax - a major revenue source - is upheld, the head of the Metropolitan Transportation Authority said on Thursday.
Chairman Joseph Lhota said the MTA, which operates the nation's largest mass transit system, stands to lose $1.8 billion of revenue a year. The authority's budget for 2012 is $13 billion.
A New York state judge on Wednesday ruled the tax paid by employers in the downstate region the MTA serves was unconstitutional because it does not apply to the entire state.
If the ruling is affirmed, "The MTA would be forced to balance its books with devastatingly severe service cuts and ever-increasing fare hikes," Lhota said at a news conference in Manhattan's Grand Central Terminal.
The MTA runs New York City's buses, subways, and commuter railroads, which carry 8.5 million people a day. It also operates some major bridges and tunnels.
The lawsuit was brought by Nassau County Executive Edward Mangano, a Republican, whose county, which lies on the western half of Long Island, is located within the taxing district.
Mangano said Nassau had paid nearly $10 million in MTA payroll taxes since the law was enacted, adding: "The MTA must become more efficient before asking for more taxpayer dollars."
Lhota said the MTA is putting its fiscal house in order, cutting $700 million of costs on an annualized basis this year.
Employers located in New York City and the seven downstate counties served by the MTA pay the payroll mobility tax, which can be as much as 34 cents for every $100 of salary.
In a financial plan presented in July, the MTA said it expected to end both 2012 and 2013 with a $46 million cash surplus, but slip into deficits after that.
The MTA has appealed directly to the state's top court, which will speed the process. Lhota said he was confident the MTA would win on appeal.
Four other lawsuits that made the same constitutional arguments as the lawsuit filed by Nassau were rejected by a state court in Albany in 2011 and 2012, MTA officials said.
Lhota declined to estimate any possible service cuts or fare increases. The MTA's $93 million of service cuts in 2010, which eliminated over 30 bus routes and two subway lines, was known as the "Doomsday" plan. The reductions have been partly rolled back.
The state enacted the payroll tax to help fund the transportation authority in 2009, after the recession had withered some of the real estate tax revenue it relies on.
(Reporting by Joan Gralla; Editing by Phil Berlowitz)