A panel overseeing Nassau's bus system approved a nearly $128 million operating budget Thursday, while the head of the system cautioned against reducing service to fill a multimillion-dollar revenue gap.

The Nassau County Bus Transit Committee, whose members are appointed by the county executive and the county legislature, voted 5-0 to authorize a $127.9 million budget for the Nassau Inter-County Express bus system -- $6 million more than the current budget it authorized at this time last year.

The new budget includes a $5.3 million gap in revenue, Michael Setzer, chief executive of Nassau Inter-County Express, told the committee during a public meeting Thursday at the company's headquarters in Garden City.

The shortfall could be made up with an increase in state operating aid, some other subsidy or a fare increase, he said.

Fares went up on Sunday by 25 cents to $2.75 for a single ride for MetroCard users, following a 25-cent increase in fares for cash customers that began last September.

Setzer said reducing service to find savings would be a drastic measure that would heavily impact the system.

"Balancing the budget through service reductions would severely impact the entire system and would result in some entire route cancellations," he wrote in a budget document submitted to the committee.

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The state has proposed a subsidy for the system of $62.8 million -- an amount unchanged from last year, even as operating costs have risen, Setzer said.

The bus system anticipates $47 million in fare revenue, the second-biggest source of income in its budget. It also receives a subsidy from the county, money from bus advertising and other sources.

The biggest factors driving increased costs in the new budget were a 3.5 percent contractual pay raise for unionized workers and a 7 percent increase in health insurance premiums, Setzer said.