City council's finance boss says Winnipeg Transit fares may need to rise more than the standard nickel next year in order to preserve the quality of bus service, never mind improve it.

Coun. Scott Gillingham (St. James-Brooklands-Weston) said the city's budget discussions for 2018 must include the possibility of a larger-than-usual fare hike because transit costs are going up at the same time the province has frozen its funding for the city utility.

"Given the changes in the provincial funding, given the ridership is down, something has to give. Discussions need to happen beyond fare increases of five cents," Gillingham said Thursday at city hall after a finance-committee meeting.

​This spring, the Progressive Conservative provincial government signaled the end of a long-standing agreement to cover half of Winnipeg Transit's costs. The city has covered the shortfall for 2017. 

Transit is also under pressure to improve service after learning ridership is down.

Scott Gillingham Chair Winnipeg Police Board

Coun. Scott Gillingham says discussions about higher fare increases need to happen. (CBC News )

South Winnipeg-St. Norbert Coun. Janice Lukes, who also sits on council's finance committee, said she fields complaints every day about unreliable transit service and overcrowded buses.

She said she does not blame Winnipeg Transit, which she described as doing its best with the budget it has.

"Should we raise the fare and get better service? Then other peoople can't  take the bus. It's a catch 22," she said. "I think we need to start thinking more out of the box and maybe we do need to raise the fares."

The city's transit subsidy was budgeted at $55 million for 2017 before the province froze its funding. Transit's operating costs are estimated at $189 million this year, versus $136 million worth of revenue, according to budget documents.

Next year's budget is expected to be tabled in November.

Transit officials, meanwhile, blame the drop in ridership on low gas prices. They told finance committee they have no evidence that problems with the Peggo electronic fare-collection system are contributing to a drop in riders.

Nonetheless, the city is holding back $2.5 million worth of payments to Peggo contractor Garival until the fare-collection system works well on a consistent basis.