PROVIDENCE — The state’s largest employees union has brokered a proposed settlement with the Carcieri administration which, if approved, could end a months-long battle that threatened the state’s already precarious budget.

The new, four-year deal was reached yesterday, less than 24 hours before the two sides were set to begin arbitration in the high-stakes dispute.

“It’s fair to say that the economy got worse and the deal got a little better,” J. Michael Downey, president of Council 94, of the American Federation of State, County and Municipal Employees, said last night of the new agreement. “…It’s not the easiest contract I’ve seen, but it’s not the best of times either.”

The major tenets of the proposal will stay the same, with all of Council 94’s 4,000 members forgoing a pay increase in the first year, Downey said. And as was true of an earlier contract proposal rejected this summer, the benefit structure will change from one where employees pay a percentage of their salary toward health-care costs to one where they pay a percentage of their insurance premiums. That move could still mean that many will pay more for their health care.

But under the new agreement, some of the lowest-paid workers –– those the union was most concerned about –– will see their health-insurance premiums increase at a slightly slower rate to coincide with pay raises, Downey said.

“What we have now is a situation where some of the lower-paid employees will pay a little less than the original [deal],” he said.

In year one of the contract, employees will pay between 8 percent and 25 percent of premiums, with that percentage increasing to 15 percent to 25 percent in the fourth and final year, Downey said.

The deal also reinstates certain rules that allow more senior employees to “bump” their more junior colleagues; and it now allows those who participate in a wellness incentive program to earn $500 insurance credits during all four years of the contract, up from three, he said.

It was Downey who this summer publicly rejected the settlement brokered by his own union leadership, because he opposed the health-care changes. The union rank and file then overwhelmingly defeated the plan, sending the two sides into a heated face-off that dragged from the state’s court system, to mediation and finally to arbitration.

But last night, the Council 94 president said he would urge his members to vote for the new agreement. “I want this to pass,” he said. “…Certainly I would have liked to do better, but the economy gets worse every day and this is a little bit to help the Carcieri administration to get what they want.”

The administration said little about the proposed deal yesterday, releasing only a brief statement.

“Unfortunately this was a long process to get us to this point,” Carcieri said. “There is no question that the state is facing even more fiscal challenges now than when the original agreement was reached with union leaders in June. This agreement will allow the State to attain the cost savings originally projected and it is my hope that the union membership will ratify the agreement quickly.”

He did not elaborate.

The current state budget hinged, in part, on at least $10 million in personnel savings from the union contract, but that assumed an early-summer passage of the deal.

It is unclear how the months of delays could affect that plan.

Carcieri spokeswoman Amy Kempe yesterday refused to discuss the particulars of the settlement or the associated savings.

Now the settlement falls to the hands of Council 94 members, who are expected to vote on the tentative contract on or before next Friday, Oct. 24.

Both parties have agreed to postpone arbitration hearings until voting is completed. But Downey said the union has elected to keep the pre-scheduled November hearings, in the event that the agreement fails.

The contract is just one piece of the protracted dispute between the Carcieri administration and the union. The two sides continue to clash over the state’s plan to charge higher health-care premiums to state workers who retired after the first of this month.

That case is due back in court in the coming days, when a judge is expected to weigh in on the merits.

kgregg@projo.com