Hartford - After more than two months of negotiations, the state has reached a tentative agreement with union leaders to save $1.6 billion over two years and balance the state's budget.

Although the deal is $400 million shy of Gov. Dannel P. Malloy's initial goal of $2 billion in labor savings and givebacks, the difference can be made up through a mix of additional budget cuts and higher revenue projections, the governor said at a news conference in the Capitol Friday.

The agreement calls for various downward adjustments to employees' wages, health care and pension benefits, the full details of which have yet to be made public.

The governor did confirm a promise of no layoffs for four years for unionized state workers. And the 4,742 layoff notices that began going out this week have been rescinded.

The agreement also calls for a two-year wage freeze, after which the union workers will receive pay increases of 3 percent in year three, 3 percent in year four and another 3 percent in the fifth year, Malloy said.

The governor said the full giveback package will save the state $21.5 billion over the next 20 years.

"This is the most significant agreement with state employees in Connecticut history," Malloy said, "not just because it solves a short-term problem, but because it produces the kind of long-term structural reform we - Connecticut's residents, elected leaders and our state's work force - so desperately need if we are to again grow, produce new jobs and prosper."

But the agreement is not a done deal. Roughly 45,000 state union members must still agree to it.

GOP criticism

Republicans were quick to criticize the labor agreement, suggesting that the administration let the unions get off easy.

"This deal is insulting to anyone who can add two plus two," state GOP Chairman Chris Healy said in a statement. "There are no cuts in the size of the work force, just trimming around the edges and putting off the inevitable - more taxes to cover an unconstitutional budget that punishes success and fails to address the unsustainable burdens of current operating costs and long-term debt."

Some Republicans consider the budget to be unconstitutional because it passed the legislature and the governor's desk without being balanced.

Senate Minority Leader John McKinney, R-Fairfield, took issue with the four-year promise of no union layoffs. He said the state needs greater flexibility with its work force as a hedge for economic downturn and to take advantage of new efficiencies. He also noted that the deal doesn't involve any unpaid furlough days.

Voting could take weeks

Representatives of the State Employees Bargaining Agent Coalition said ratification by 14 of the 15 state unions, as well as the approval of 80 percent of voting members, is the minimum threshold for approving the pension and benefits part of the agreement. Without that support, the deal etched Friday could fall apart.

Wage adjustments then must gain approvals from each of the unions' 34 bargaining units. If bargaining unit members vote down the deals, the state wouldn't achieve the expected savings.

Union leaders asked the governor to withhold from the public the full details of the proposed givebacks until their members have been told what's being asked. The voting process could take several weeks.

"This is just the beginning of a long process," said Matt O'Connor, a spokesman for the bargaining coalition known as SEBAC. "We have to get out there and talk to our members about why this agreement is not just good for them, but good for Connecticut ... For SEBAC to have this tentative agreement is a signal that it's a good agreement."

According to state officials, the deal adds a five-year extension to the 20-year labor contract for pension and retiree health benefits that was signed by former Gov. John Rowland in 1997. Republicans criticized Malloy on Friday for granting the extension.

More revenue expected

The governor's administration set out to wring $1 billion in annual savings from state employees and began talks with union leaders in early March. Both chambers of the Democratic-controlled General Assembly passed the two-year, $40.1 billion budget plan last week using temporary placeholders.

The budget, which goes into effect July 1, would bridge a $3.3 billion deficit though a mix of spending cuts, labor savings and the largest tax increase in two decades. The budget also anticipates surpluses of $369 million in the first year and $635 million in the second.

Next week the governor's budget chief is to begin formulating a plan to address the $400 million gap that wouldn't be filled by worker givebacks. Malloy said higher revenue projections will help cover that gap, although he did not elaborate. The state's latest financial analysis report anticipates $282 million in additional revenues next fiscal year over what was expected.

The governor stressed that he would not raise taxes beyond what is already in the budget: $1.4 billion the first year and $1.2 billion in the second. He plans to present the legislature with a revised budget plan before May 31.

Negotiations between the unions and the administration dragged through the day Thursday and into the predawn hours of Friday. They picked up again at 10:30 a.m., and a written agreement occurred at 2 p.m. after some in-person meetings and many phone calls.

Mark Ojakian, the administration's chief labor negotiator, told reporters that he couldn't identify the point during negotiations when he realized that Malloy's goal wouldn't happen.

"I think the most important thing about this agreement is that while it didn't reach the billion dollar mark in each year - it fell short only by a little bit - the future savings to the state from some of the structural savings that have been made are huge," he said.

j.reindl@theday.com