A third year of declining ridership is putting a strain on BART’s budget plans and raising the specter of more fare hikes.

Riders’ demands are escalating. They want cleaner stations, more police officers and more barriers to prevent cheats.

All of these items get expensive for a transit system that leans heavily on its fare box. BART relies on riders to cover two-thirds of its operating costs, and riders are peeling off. The rail system peaked at 128.5 million passengers in 2016 and has fallen for the two years since — to 124.2 million in 2017, and 120.6 million last year.

And it continues to plunge, BART staff said during a board meeting Thursday morning, in which the directors discussed the agency’s $2.3 billion budget. Next month, the board must approve the budget for fiscal 2020, which begins July 1. They’re considering whether to hike fares, which are set to jump by 5.4% — or about 40 cents for a long trip — in 2020. In June, the directors will decide whether to raise them again in 2022.

BART ties these fare increases to inflation and dedicates the money to capital projects, such as the new railcar fleet and the maintenance division in Hayward.

Some directors fretted Thursday that passengers aren’t getting a good deal, and that higher-priced tickets will only deter more people.

“That’s what I believe,” said director Debora Allen after the meeting. “My analogy is that if you’re not happy with your cable service, and then they come at you and raise the bill by 5 percent, the cable company is going to lose customers.”

Homelessness, drug use and grime in the stations are driving customers away, at a time when public transit is struggling to compete with Uber and Lyft. Outside commute hours, the slump really starts to show: Weekend trips are nearly 6% below BART’s projections.

“We’re losing riders because of concerns about fare evasion and narcotics use,” said board President Bevan Dufty, noting that the slide correlates with an abysmal customer satisfaction survey last year. BART’s approval rating tanked at 56%.

There are additional complications, such as the prolonged Transbay Tube retrofit that’s forcing BART to open an hour later on weekdays and the Golden State Warriors’ move to San Francisco this fall, which will reduce demand for service to their current venue at the Oakland Coliseum. The agency expects to see $435 million in fares this year and $427 million next year — down significantly from a high of $462 million in 2016.

Advertising revenue also went down 51%, from $20.7 million in this year’s budget, to $10.1 million in the preliminary budget for next year. At the same time, BART’s operating expenses are up 4%, and climbing. The agency plans to hire 19 new police officers and four fare inspectors; it’s paying several regional bus agencies to run early-bird shuttles during the tube retrofit; and it’s spending money to build walls and railings in the stations — a bulwark against fare evaders.

“BART and the Bay Area continue to face an uncertain economic outlook, and challenges to quality of life, aging infrastructure, declining ridership, increased operating expenses and substantial multi-year deficits provide additional obstacles,” General Manager Grace Crunican wrote in a sobering March budget memo. It announced $17 million in cuts, and said the agency had redirected money toward the “most pressing needs” identified in the customer survey.

Bad ratings and dwindling ridership have forced the agency to go frugal. It left job vacancies open and put some anticipated programs on ice — including a program that would have trained college students to work as police cadets. The agency also left out a civilian ambassador program that several board directors support, which has become a source of tension between BART staff and the board.

“I’m personally in very strong support of prioritizing the ambassador program over 19 police officers,” said director Janice Li.

BART is using state grants and sales tax revenue to fill in the gaps. But its directors are also scrambling to provide better service with less money.

In the end, a very small fraction of the agency’s budget is open for debate, as officials argue over how to change perceptions of the system.

“At the end of the day, we’re talking about ... the stuff that’s going to be seen and felt by riders: personal safety, homelessness and fare evasion,” Li said. “A 56% customer satisfaction rating just isn’t acceptable.”

Rachel Swan is a San Francisco Chronicle staff writer. Email: rswan@sfchronicle.com Twitter: @rachelswan