The new city spending plan proposed by Mayor Mufi Hannemann includes $23 million for employee pay raises, even though union contracts remain under negotiation.

The budget assumes that workers from three major unions will receive raises of 4 percent next year, Hannemann said.

The actual raises could be higher, but it's important to set aside a reasonable amount, the mayor said.

The largest union, the Hawai'i Government Employees Association, asked for 7.5 percent raises in each year of a two-year contract before arbitration hearings began last month. The state offered 2 percent per year.

An arbitration decision is expected by mid-April, and could award the union more, or less, than Hannemann's budget assumes.

State and county firefighters will receive raises of 5 percent per year over four years under a contract reached during arbitration last month.

HGEA could reach a settlement with the state and counties before an arbitration award is made.

Bargaining is also under way with the United Public Workers and the State of Hawai'i Organization of Police Officers.

The three unions include about 7,000 city workers. Their contracts all expire at the end of June.

Hannemann conceded that his budget may not fully cover the raises, but said it is meant to be a "guesstimate of what's fair and reasonable, and what we can afford."

The previous city administration did not include any money for pay raises in annual budgets when union contracts were pending, even though raises of some amount were virtually certain, Hannemann pointed out.

"As a former City Council member, I thought that was disingenuous and untruthful," Hannemann said.

Failing to set aside money would result in a scramble for dollars when contracts are settled, he said.

Randy Perreira, deputy executive director of the HGEA, agreed.

"Budgeting for collective bargaining is a reality," he said. "Not budgeting money would be very unrealistic, and almost irresponsible."

Marie Laderta, state human resources and collective-bargaining director, said talks with all three unions were progressing.

"Discussions with each of these unions has been encouraging," she said.