Record ridership, operational savings, and an increase in real estate tax revenues generated a larger-than-expected surplus for the MTA this year that will allow the agency to avoid the fare hike originally planned for next year, as well as $20 million in service cutbacks that were floated in September, the agency announced yesterday.

At its monthly board meeting, the Metropolitan Transportation Authority unveiled a proposal to set aside $81 million of its $938 million surplus to reduce the size of the agency and $25 million to step up security training for subway and bus operators. A $52 million windfall earned from a transfer tax related to the sale of Stuyvesant Town and Peter Cooper Village would go toward repainting at least 200 stations over 10 years if the MTA board approves the idea next month.

The chairman of the board, Peter Kalikow, said the increase in ridership and tax revenues could lead to a change in the current policy of raising fares every two years, but he steered clear of making any promises about 2009.

“We’re being less conservative than we previously were,” the executive director of the MTA, Katherine Lapp, said.

Reducing the size of the MTA is a part of the agency’s effort to cut costs in the future.”We need to get smaller, we need to be more efficient, and we need to spend dollars to downsize,” Ms. Lapp said.

Layoffs would be a last resort, according to spokesman for the agency, Tim O’Brien. The MTA would first cut through attrition. The $81 million earmarked for downsizing would be used for incentives, buyouts, and other workforce trimming methods, according to Mr. O’Brien, who said the agency is not yet projecting how many people would go.

Mr. Kalikow also floated the idea of merging Metro-North and Long Island Rail Road operations as another downsizing method, but earlier legislation to reorganize the agency met strong opposition from Republicans in the state Senate.

Many board members expressed concern about the proposed budget, noting the significant deficits the agency is expected to face in just 14 months. A deficit of $805 million is projected for 2008, and the agency is expected to run a $1.793 billion deficit by 2010.

“We can’t keep living on windfalls,” a board member, Susan Metzger, said, referring to money recovered as a result of the Stuyvesant Town sale.

The board will vote on the budget in December.

Transit advocates said yesterday that they supported the MTA’s decision to put off a fare increase.

“There’s no way they can raise fares and cut service with numbers like that,” the staff attorney for the Straphangers Campaign, Gene Russianoff, said, referring to the MTA’s $938 million surplus. “The truth is that if the MTA doesn’t spend the surplus they have now, someone else will spend it for them.”

Mr. Russianoff expressed concern over future deficits. “It’s a little premature for celebrations,” he said. “The numbers are real and they’re bad.”