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Yesterday, the Tri-County Metropolitan Transportation District of Oregon (TriMet) unveiled a proposal to hike fares and cut services to address a shortfall in its fiscal-year 2013 that could climb as high as $17 million.

The deficit, expected to range from $12 million to $17 million, is the result of an anticipated reduction in federal funding, as well as costs associated with an unresolved labor contract, TriMet officials said in a prepared statement.

The agency’s FY2012 operating budget is $444 million. With employment and wage growth remaining stagnant, the agency is anticipating receiving $3 million less in payroll tax revenue than previously estimated, TriMet officials said.

In addition, uncertainty over future federal transportation funding has prompted agency officials to anticipate a cut of about $4 million in its federal funds for the next fiscal year. The agency receives $40 million to $45 million in federal funds for annual preventive maintenance.

The union contract, which expired in 2009, is now heading to interest arbitration scheduled for May. A recent Employee Relations Board decision removed certain “cost-saving proposals” from management’s final offer, which will add $5 million to $10 million to the FY2013 budget shortfall, TriMet officials said.

To address the shortfall, agency officials are proposing eliminating current fare zones in favor of a flat-fare system, which they anticipate would increase revenue by about $9 million; and dropping the free rail zone in downtown Portland, which would save about $2.7 million.

The proposal also calls for eliminating and reconfiguring various bus routes, and reducing the frequency of certain rail services. Also, TriMet would propose a $400,000 cut in its contribution to the Portland Streetcar service.

The agency is accepting public comments on the proposals through March 2.