Twenty ten has been very unkind for the MTA. The year started out with Albany robbing the authority of over $143 million, and it’s been one bad piece of economic news after another. The payroll tax has fallen around $300 million short of expectations. The MTA has to go through the charade of public hearings to cut station agents. Now, Albany might outlaw OPTO and station agent reductions until 2013 all without providing much-needed funds for these unnecessary positions.

Through it all, the MTA has implemented a sweeping series of service cuts that has left bus commuters reeling and has restructured subway service patterns throughout parts of three boroughs. The agency won’t, however, seek to raise the fares until 2011 when it has legal permission to do so. In speaking with John Gambling on WOR radio yesterday morning, Jay Walder reiterated that position. “It will not come earlier,” Walder said. “We’re going to hold to the schedule.”

That’s the good news. The bad news, says Walder, is that the fare hikes will be far greater than the 7.5 percent increase the agency’s four-year plan had stipulated in 2009. “We’re grappling with an exceptionally difficult financial times and that requires tough decisions,” the authority’s chairman and CEO said. “It requires things that are painful for our employees and our customers, and we have to recognize there’s no easy way out.”

I can’t even begin to speculate on the size of the next fare hike. The agency still has, by most accounts, to fill a budget hole of nearly $300 million and will propose its solution later this month when it unveils its financial plan. We could see an increase of 15 percent or more. I wonder if this is the right approach.

I’ve long espoused the theory that the MTA should raise fares as much as it can before cutting service. It boils down the simplicity of the authority’s mission: It is supposed to be supplying a service to the public in the form of efficient, fast and frequent mass transit to meet rider demands. As Section 1264 of New York’s Public Authorities Law says, the MTA’s purpose is to provide for the “continuance, further development and improvement of commuter transportation.” Service cuts seem anathema to that goal.

One of the problems lies in the MTA’s approach to the fares. The authority isn’t required to hold down fares or artificially deflate them, and yet it has. With unlimited-ride MetroCard programs and pay-per-ride discounts, we are paying less per ride on average in real dollars than we did in 1996. As deficits grow, that the fares haven’t kept pace with inflation is just a bad business practice.

Another problem is one of priorities. Perhaps I’m unique in this sense, but I’d rather pay more for the same service today than pay the same for less service today or pay more for less service tomorrow. We know the MTA won’t restore the service cuts when they raise fares in January, but had they chosen to raise fares by five percent this year, the increase in revenue would have been more than enough to stave off the cuts. If that’s the price for a public transit network that doesn’t shudder under the weight of demand, then so be it. My 30-day MetroCard costs me approximately $1 per ride as it is; I can withstand a fare increase.

In the end, this discussion is one of policy. Would the MTA rather incur the wrath of riders and politicians over the third fare increase in as many years or through service cuts? For now, the answer is service cuts, but the authority should make sure that their customers know the service cuts — and the eventual fare hikes — were brought about through inaction in Albany. The state has refused to provide adequate funds for Student MetroCards; the state has refused to enact congestion pricing or East River bridge tolls. Instead, the state has stolen money earmarked for the MTA, and then the same representatives who voted for that measure slam the MTA for its budget gap.

A pawn because of its status as a creature of the state, the MTA can’t speak out against Albany as those who fight for better transit in the city do. What the MTA should do though is raise the fares before it begins to cut service. Without providing ample service, what role does the agency serve anyway?

At the end of this post is a poll about how you think the MTA should balance its budget. Scroll down or click here to vote.

For 44 years, from 1904 to 1948, subway fares in New York City cost riders one nickel. The Buffalo Head became the symbol of a subway ride for millions of New Yorkers, and by 1948, the five-cent fare had become a political issue. Those running the city’s transit systems could not sustain the system on five cents per ride — or the 1948 equivalent of two cents in 1904 money — but politicians ran populist campaigns focused around saving the low subway fare.

If that sounds familiar, well, that’s because it is. History has a funny way of repeating itself in local politics, and the subways have long been used as a political football of sorts. Fiscal improprieties and fare hikes have been the cause of politicians for decades even as the very same politicians refuse to find adequate funds for the underground veins of New York City.

Recently, we’ve seen all sorts of fare and fiscal shenanigans involving the MTA. When the Board had to raise fares in 2008 to cover an expected economic shortfall, then-Gov. Eliot Spitzer pushed to maintain a $2 base fare while upping the price on the rest of the MTA’s fare options. In 2009, the MTA raised fares by approximately 10 percent as part of the Albany funding package.

And so we arrive in 2010. Nearly a year ago, the agency vowed to avoid a fare hike this year, and we’re seeing that political drama in the form of service cuts play out. Were a fare hike on the table, the agency would be in line to raise the fares in four consecutive years and potentially five out of seven years for a biannual cost-of-living fare adjustment is likely in 2011. This hike — a centerpiece of the Ravitch Report designed to free the MTA from some economic uncertainty — remains up to the discretion of Albany as Ravitch’s recommendations were not adopted.

As the MTA unveiled its fiscal problems to the city in December, the agency clearly did not believe it to be politically expedient to put forth a budget balanced on the backs of a fare hike. In fact, not once did anyone at the authority mention a fare hike. Rather, as the end-of-year returns and 2010 projections rolled in, the MTA quickly embraced service cuts. Although many of these service cuts could be viewed as refinements that should better help the MTA address transit needs, the fact remains that these are cuts through and through. In particular, the Student MetroCards are a prime example of that trimming.

Over the last few weeks, many have asked me why the agency didn’t consider a fare hike and what a hike proposal would potentially look like. We’ll start with the latter question. In general, a one percent increase in fare yield — or money collected — will lead to an increase in revenue at the MTA of approximately $50 million. To cover the 2010 budget gap — estimated right now at around $350-$400 million — the MTA would have to increase fare yield by eight percent. That doesn’t correspond directly to a fare increase of eight percent because of the agency’s discounts, but we could assume an increase of 10 percent. A 30-Day Unlimited Ride Card would probably be nearing that magical $100 mark, and everything else would increase accordingly.

So why didn’t the MTA go this route? As I explained above, politics played no small role in this decision. The agency seemingly did not believe it could renege on its promise to avoid a fare hike this year, and it had a better card to play. By throwing down the Student MetroCard issue and forcing politicians to respond to charges of underfunding student transportation, the MTA could hope to generate more political agita that should result in more student funds. At the least, it’s a safer bet than anything fare related. There, politicians would stomp their feet and approve another fare hike.

In the end, though, we pay through service cuts. We will see train headways increased, load guidelines revised, neighborhood bus routes restructured and eliminated and service generally slowed down. Eventually, we’ll have to pay higher fares or else the MTA won’t be able to sustain an adequate transit network for New York City. With these cuts, the authority is beginning to run up against that boundary.

So in the grand tradition of bloggers who don’t have the right answer to tough questions, I leave you with a poll. Would you rather have a service cut this year or fare hikes? I err on the side of fare hikes simply because services rolled back take a long time to restore; the fares will eventually go up anyway. Not everyone agrees.