The surprise decision by Cablevision on Friday to compete with the Jets for development rights at the West Side rail yards was received about as warmly by the Bloomberg administration as a jilted lover on a honeymoon. Just as Mr. Bloomberg appeared ready to conclude a deal that he regards as vital to the city’s chances of securing the 2012 Olympics, the civic groups that oppose development on the site have been armed with fresh ammunition.

The coming dispute will pit Mr. Bloomberg against those who think the $300 million incentive the mayor has offered the Jets to build a stadium on the site is either better spent on social services, like public education, or a sweetheart deal that amounts to a public subsidy of private business. By offering roughly six times the $100 million offered by the Jets, Cablevision has given members of this latter group a strong argument.

But the group that stands to suffer the most embarrassment from the coming debate over the rail yards is not Mr. Bloomberg or the Jets: It’s the MTA. The cash-strapped transit service has until now justified its willingness to sell air rights over the 13-acre parcel of land by citing giant shortfalls in its coming fiscal years. The authority, which raised fares and cut services last year because of ballooning interest payments and other expenses, is staring at a $586 million deficit in fiscal 2006 and nearly $1 billion in fiscal 2008.

Upstate lawmakers, including Governor Pataki, have shown little sympathy. Faced with a multibillion deficit and near-rebellion from county executives over the ballooning costs of Medicaid to property owners, Mr. Pataki low-balled the MTA by more than $5 billion in its latest request for expansion funds. The governor has suggested that the MTA seek private partners for its future development plans instead.

Publicly, the MTA has agreed to consider such proposals even as it complains that the governor’s proposal is too small. It has said it will consider private partnerships for a long-awaited East Side expansion and the sale of a variety of its assets, including the West Side rail yards, to help cover costs. After listening to MTA’s executive director, Katherine Lapp, list a number of these ideas in Albany last month, Assemblyman Richard Brodsky, chairman of the committee that oversees the MTA, responded: “That’s no way to run a transit service, Ms. Lapp.”

Reasons for the MTA’s financial mess vary. As the largest transit system in the Western Hemisphere, the authority handles eight million trips each weekday. This isn’t cheap. To make money, the MTA draws roughly $7.6 billion in revenue from fares, dedicated taxes, tolls, and government subsidies. More than half that money goes to current and past employees. Another 20% goes to interest payments on past loans and health and welfare expenses.

Where does the remaining quarter of the revenue go? A report issued to legislators last month by Ms. Lapp indicated that roughly 23% of MTA revenue goes to “non-labor expenses.” No further details were given. But a key to the destination of at least some of the $1.6 billion represented by these “non-labor expenses” could lie in a tiny item tucked away in the transportation section of Governor Pataki’s latest budget proposal.

The item, a proposed amendment to the state’s Public Authorities Law, would eliminate language in the current law that allows injured MTA employees to essentially sue their employer twice for the same injury. Because the MTA leases much of its property and assets from the city, uniformed employees who get injured on the job are currently allowed to collect worker’s compensation from their employer, then sue the city for the same amount.

The governor’s budget proposal says removing this loophole could save the state “millions” in judgments and settlements and “numerous” hours of staff time. In one recent case, the budget says, the loophole resulted in a $1.25 million award. A lawyer for the New York Law Department said efforts to eliminate so-called collateral source payments have repeatedly failed because, he said, of the large number of trial lawyers in the state Legislature.

Such lawsuits against the city and its agencies are not new. And unlike violent crime, they are not becoming more infrequent. New York handed out $600 million to residents and city employees last year in judgments and settlements, up from $27 million in 1977. Many of these cases involved precisely the sort of loophole Mr. Pataki hopes to eliminate from state law in connection with the MTA.

Some Democratic lawmakers, hoping to pit the MTA against the governor in the coming battle over budget dollars, have shown alarm over what they portray as Mr. Pataki’s stinginess in the face of MTA shortfalls. The most vocal of these critics, Mr. Brodsky, told Ms. Lapp at a public hearing in Albany last month that she would have to speak out against the governor if she expected increased funds. Ms. Lapp declined.

The sincerity of Mr. Brodsky’s criticisms is not in doubt. The Westchester Assemblyman has displayed equal vigor in his efforts at ensuring that the MTA receive top dollar from the Jets for development rights at the West Side rail yards. But his solicitude for the MTA and the millions who benefit from it each day should also translate into alarm at a law that allows employees to skim millions in unjust settlements from the transit service each year. If the Jets do end up getting a sweetheart deal from the MTA, they won’t be the first. Aided by sluggish lawmakers, injured employees have been taking a cut for years.

Mr . McGuire is the Albany bureau man of The New York Sun.