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HELENA — The Schweitzer administration and the state's three major public employee unions reached a tentative agreement Wednesday on a pay raise for state employees over the next two years.

Under the plan, employees would get a 1 percent pay increase effective in January 2012 and a 3 percent pay increase effective in January 2013. The increases would take place in the first pay periods of January each year.

There would be no increase in the state's contribution for employees' health insurance premium costs under the agreement. Employees would have to pick up any of the premium increases after calendar year 2011.

The agreement comes on the heels of a two-year pay freeze for employees for the 2010 and 2011 fiscal years, although those making less than $45,000 annually received a one-time payment of $450.

In the previous biennium, state employees received 3 percent raises in both October 2007 and October 2008.

“I'm happy that we were able to do right by Montana,” Gov. Brian Schweitzer said. “Our state employees are some of the hardest-working in the nation.”

He called the agreement “fair to the taxpayers and reasonable to our state workers.”

The current pay proposal must be ratified by members of the three unions: MEA-MFT, Montana Public Employees Association and American Federation of State, County & Municipal Employees.

The 2011 Legislature also must approve it.

The estimated cost of the proposal to the state for the two-year period is $21.6 million from all funds, including $11.4 million from the general fund, said David Ewer, Schweitzer's budget director.

Leaders of three unions all endorsed the tentative agreement.

“We were pleased to be able to make a deal and to be able to make it today,” said Eric Feaver, president of MEA-MFT, which represents educators and government employees. “We will do everything within our power to make sure this deal is both ratified by our members and by the Legislature.”

Feaver said Schweitzer and his administration officials are confident the state can pay for the pay raises because of “our growing fiscal capacity.”

“We're grateful for the recognition that to continue a pay freeze is bad for state employees, bad for programs and services and bad for the state of Montana.”

Quinton Nyman, MPEA executive director, said the health insurance part of the deal “is difficult to swallow.”

“It really is a question of where do people want their money, whether its wages or health insurance,” he said.

“What I'm hearing right now from people is they're happy a raise is coming.”

Nyman said he didn't expect the administration would offer a pay raise.

“We went into the room, and I thought it was zero (percent) and zero (percent) and health insurance or some token number,” he said.

MPEA, like the other unions, will send out the tentative deal for a ratification vote by members over the next two weeks, he said. The unions will count their votes at the end of November.

“We just felt it was important to get something on the (pay) base this time,” said Timm Twardoski, executive director of the local of AFSCME.

Under the plan, state employees also will see the state contribute more toward their pension plans.

“I think the governor's office saw the need that we have to do something for state workers,” Twardoski said.