MTA chairman and CEO Joseph Lhota entered hostile territory Friday, trying to convince a group of Westchester business leaders that a controversial tax on their payroll will be good for their bottom line in the long run.

Lhota cautioned that if a judge's ruling declaring the Payroll Mobility Tax unconstitutional is allowed to stand, a gaping $1.8 billion hole will be left in the MTA budget that will have to be filled with fare increases.

"We would have to have massive spending cuts," Lhota said during a Friday morning meeting of the Business Council of Westchester in Tarrytown.

"[The MTA] just couldn't cover it. We would be not only looking at reductions in service but we'd have to look at fare increases that I think would be so severe that it might actually make the tax look better in comparison. I know many people in the room may not believe that."

He brushed off suggestions that the money raised by the tax helps bankroll the New York City subway system.

"I'm here to tell you that is absolutely not true," Lhota said, adding that a larger percentage of the tax goes to support Metro-North and LIRR fares than the city subway system.

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Republican lawmakers have dubbed the tax a "job killer" that unfairly saddles businesses in the MTA region with a tax of 34 cents for every $100 of payroll.

They cheered the Aug. 22 decision by Nassau County Supreme Court Judge Bruce Cozzens declaring the tax unconstitutional. Last month, the judge sided with a dozen suburban counties -- among them Westchester and Putnam -- in their yearlong court battle to get the tax overturned.

The MTA has appealed Cozzens' ruling and is awaiting the Appellate Court decision.

The outcome could have broad implications for fare hikes and the economic health of the MTA. This week, Moody's Investors Service said it might reconsider its A-2 rating on $16.6 billion in outstanding transportation revenue bonds scheduled to be sold next week.

And a budget watchdog group predicted that the MTA would be left with a $459 million hole in its budget if the portion of the PMT paid by suburban counties who oppose the tax is eliminated. That would translate into a 32 percent jump in fares for Metro-North riders and a 46 percent jump for LIRR riders, the Citizens Budget Commission said. The price of a monthly ticket from White Plains to Grand Central Terminal would go from $229 to $302.

Business leaders concede that the elimination of the tax, in effect since 2009, could be bad for their employees, many of whom travel on Metro-North, but they remain united in their opposition to the tax.

"It's had an effect on our business," said Marsha Gordon, the president of the Business Council. "But today we got a better understanding of the MTA's finances. It's a difficult balancing act. We hope it won't be on the backs of business."

Metro-North has one of the largest reverse commuting populations in the nation, Lhota said. The number of commuters boarding trains in White Plains for Manhattan equals the number leaving the city for White Plains, he said.

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Lhota's dire warning comes as the MTA forges ahead with the largest expansion in service on Metro-North since it started in 1983. Some 230 per trains will be added every week, knocking down average wait times to 30 minutes.

"Metro-North's incredible growth doesn't merely reflect the growth of Westchester County," Lhota said. "I believe it helps to drive the growth."

Lhota said that sort of expansion has been made possible by trimming the fat in the MTA budget -- some $700 million from the operating budget last year alone.

Lhota said his trips to Albany to meet with lawmakers convinced him of the need to make the MTA more efficient.

"I don't want to deal with the fact that, 'Well, the MTA is bloated,'" he said. "I'm gonna do everything that we possibly can to show that we're not bloated, to show that we're more efficient."

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Among Lhota's goals: getting Metro-North routed into Penn Station on Manhattan's West Side, in addition to its current stop at Grand Central Station.

"It would be great if people who lived in Westchester County had a choice," Lhota said.

But, he noted, Penn Station is controlled by Amtrak and getting space for MTA trains is no easy task.

"We have to work with them," Lhota said. "That's not easy. You think working with the MTA is hard? You should see what it's like to work with Amtrak."

Lhota urged the gathering to put aside their disagreements over the tax.

"You're in business," Lhota said. "I'm in business. I think we need to be in business together."

The tax was created in 2009 at a time when the MTA, which operates subways, buses and commuter railroads, was facing record deficits. A dozen counties from MTA's region, including Westchester and Putnam counties, sued to have the law overturned in 2010.