Lawmakers in Albany have voted to approve a bailout plan for the Metropolitan Transportation Authority, putting to rest months of speculation over the threat of massive fare hikes and service cuts.

Both the State Senate and State Assembly held final votes Wednesday night.

In the State Senate, it was passed by a razor-thin party-line vote of 32 to 29, with one senator absent.

Under the $2.26 billion plan, subway fares will increase, but not nearly as much as feared.

The long-awaited plan will hike the base fare 25 cents to $2.25 and monthly passes will go up from $81 to $89, instead of the $103 originally proposed. Other fares will increase by 10 percent.

In addition, the massive service cuts and layoffs planned will be avoided.

The revenue will go to paying off the agency's deficit and funding repairs to stations and other projects.

The governor acknowledged that the whole process has been difficult on commuters.

"They have suffered, feeling that there would be dramatic increases in fares and service cuts that would actually, in the catchment area in which some lived, would almost prohibit them from getting to work," said Governor David Paterson.

"After a difficult time under difficult circumstances, they essentially adopted the principles that were outlined in the commission that I had the honor to chair and in the report that we gave," said former MTA Chairman Richard Ravitch.

The deal includes a payroll tax to fund about two years of the MTA's five-year capital plan.

The fee for a driver's license will go up from 25 to 30 percent. There will also be a supplemental car registration fee, an additional 5 percent sales tax on car rentals, and a 50-cent taxi surcharge.

Fare hikes of 7.5 percent will be necessary again in 2011 and 2013.

State Senate Majority Leader said that while he was hesitant about all of the new taxes, they were necessary.

"No one likes to tax people, there's no question about that," Smith said. "What we are trying to do is fix a system we agree, we agree, the system is horrible. The MTA, believe me, if I could take it apart tomorrow and send it to some MBA school and them restructure and fix it from bottom-up, I would do it overnight."

Most riders said that they were happy the fare hikes had been minimized and the service cuts eliminated. But, like Smith, many said they fear the chronic problems with the MTA will continue.

"I take the bus in every day. I do use the transit system. But I also know, as we should all know by now, whenever the government steps in to bailout somebody out, you can pay a lot now or pay a lot more later," said one rider. "I would rather see us bite the bullet now and do what we need to do to correct the system."

"For now it's a good start," said another.

Also included in the proposal are changes to the MTA that lawmakers say will increase transparency accountability of the agency. An independent audit will be conducted to see if additional savings can be found in the MTA's budget.