A tentative agreement yesterday to give about 26,000 state and county employees 4 percent annual pay raises helps clear the way for state lawmakers to shape the state budget and the size of a possible tax refund.

"I'm glad to see that they settled early, because it makes it easier for us in terms of plugging in actual numbers and then determining what other things we can use our resources on," said state Sen. Rosalyn Baker, D-5th (W. Maui, S. Maui), chairwoman of the Senate Ways and Means Committee.

Baker and state Rep. Marcus Oshiro, D-39th (Wahiawa), chairman of the House Finance Committee, would not offer estimates yesterday on tax relief or other specific spending but said there is more certainty as lawmakers prepare for a conference committee on the budget.

"The work is not done, but we're now a lot closer," Oshiro said.

State lawmakers have been waiting for collective bargaining with the Hawai'i Government Employees Association and other unions as they draft the state budget and explore a tax refund.

Negotiations between the state and the Hawai'i State Teachers Association and the United Public Workers are ongoing, so lawmakers do not know the full amount of the pay raises, but the HGEA represents nearly half — 45 percent — of state and county workers and was the largest piece of the puzzle.

Gov. Linda Lingle and the union announced the tentative agreement yesterday on a new two-year $183.2 million contract, averting binding arbitration.

The settlement would award 4 percent annual pay raises starting in July. Step movements within salary ranges also would be provided to workers based on performance and years of service.

An arbitration panel had been expected to rule by April 23 after the state's labor negotiator and the union had reached an impasse. But negotiations continued and led to a settlement, only the second time since 1995 that an HGEA contract was not resolved by arbitration.

WORKERS TO VOTE

Union leaders said the potential contract could be ratified by rank-and-file workers by April 17.

"It's a good agreement that's fair to our employees," Lingle said at a morning news conference with the HGEA at the Capitol. "It recognizes their contributions to our efforts here to make important changes in our state, to make certain that our economy remains strong over the long term, and to raise the standard of living for all people in the state."

Russell Okata, the HGEA's executive director, said the union and the governor have had their political differences but were able to work together on behalf of the state and counties. The HGEA was active in supporting former state Sen. Randall Iwase, a Democrat, against Lingle in last year's election and was among the harshest critics of the Republican governor's leadership.

"Hopefully, this contract will not only bring fairness to the workforce, but also to the people we work every day for — the public," Okata said.

Mayor Mufi Hannemann said the settlement would fit within the budget he has given to the City Council. The mayor also noted he had envisioned 4 percent annual raises and had been criticized by some for contradicting the state's initial 2 percent offer.

"They were saying 2 percent, I said 4 percent. I thought it was fair, it was reasonable, and most importantly, that's what we can afford," Hannemann said. "The private sector is giving out, on the average 3.8 percent pay raises, and I just thought it was something we could justify."

Lingle and union leaders declined yesterday to release some of the details of the tentative agreement because it has not gone before union members. The proposed contract runs from July 2007 to June 2009 and covers six bargaining units, including blue-collar and white-collar supervisors, educational officers and administrators. The state and the unit representing about 1,500 registered nurses are still at an impasse.

The state's negotiator had initially offered 2 percent annual raises, and HGEA wanted 7.5 percent raises. The settlement calls for 4 percent annual raises, along with step movements within salary ranges. The existing contract gave workers no raise in the first three months, followed by 3.5 percent increases in October 2005 and October 2006.

The raises would come at a time when University of Hawai'i economists have predicted rises in inflation, which can weaken purchasing power. Inflation could rise to 4.8 percent in 2007 and 3.8 percent in 2008, according to UH economists.

GOAL ACHIEVED

Randy Perreira, the HGEA's deputy executive director, said the union believes it achieved its goal of an across-the-board pay raise and step movements. He said the union also was able to negotiate increases in travel and meal allowances and other items. Asked why the union did not wait for arbitration, Perreira said the negotiations were about reaching a settlement that was fair to both sides.

"It proved for us that you don't have to rely upon on arbitrator's decision to reach a reasonable settlement on our contract," Perreira said.

The settlement would fit within the financial plan Lingle gave to the Legislature while also reflecting what Perreira described as the essential services union workers provide to the public. "I think this is a bargain," he said.

Four of the past six labor contracts with the HGEA have been settled through binding arbitration. Lingle, former Gov. Ben Cayetano and several lawmakers have criticized the arbitration process — which replaced the union's right to strike — as often leading to awards that are favorable to labor.

The Legislature repealed binding arbitration for the HGEA in 2001 but restored it in 2003 over Lingle's veto.

State Sen. Sam Slom, R-8th (Kahala, Hawai'i Kai), said there is still a need to repeal binding arbitration.

"This just shows that they got the state to double its ante from 2 percent to 4 percent," Slom said.

But state House Majority Leader Kirk Caldwell, D-24th (Manoa), said the agreement undercuts the argument that union leaders would naturally wait for arbitration because they were likely to get a better deal than by negotiating.

"This shows that that's not correct," Caldwell said.

Reach Derrick DePledge at ddepledge@honoluluadvertiser.com.