PROVIDENCE — A months-long standoff that pitted Rhode Island’s largest state employees union against the governor and threatened the state’s budget came to an end yesterday with the union’s approval of a new four-year contract.

Thousands of rank-and-file members of Council 94, American Federation of State, County and Municipal Employees, cast ballots this week, voting 1,569 to 1,075 to accept a deal similar to one they rejected this summer.

Both the union and the governor acknowledged obvious relief yesterday that the agreement, even if imperfect, was finally resolved.

“With the way the economy has been going down, the package looked better, and that made people more inclined to vote for it,” said Council 94 Executive Director Dennis Grilli.

The union’s rejection of the first deal prompted a bitter clash with the Carcieri administration that started in the court system and found its way to an arbitrator’s doorstep.

“The state’s economic picture is getting worse,” the governor agreed in a statement. “And it is critically important that we start to implement the cost-savings changes achieved from the new contract. I commend the union leadership for recognizing these tough times and voting for the agreement.”

The new contract increases health-care costs, provides no pay increases in the first year and boosts copays for emergency-room care and specialists, bringing it more in line with private-sector packages.

But it relieves some of the burden on lower-paid employees by requiring they pay a lower percentage of their health-care premiums, and offers a four-year “wellness incentive” that could reduce medical co-share payments by up to $500 a year for those who agree to such practices as seeing a primary-care physician and quitting smoking.

Because the deal is also retroactive to Aug. 8, the union and the state must sit down and devise a schedule to gradually deduct the extra money from the paychecks of Council 94 members between now and July 1 of next year.

Carcieri says the agreement will achieve all but $160,000 of the $10 million in savings necessary to keep the state’s precarious budget on track.

The remaining $160,000 in savings will come from an usually high number of state retirements this year –– the result of a change in retiree health benefits that would have raised insurance costs for anyone who left after Oct. 1.

While the state plans to fill some of the vacant positions, it will leave many of them open to trim costs. The administration says it does not yet know how many jobs it will fill in coming weeks.

The contract’s passage was no accident. Council 94 President J. Michael Downey said he and the 21 other local presidents worked tirelessly in recent days to convince their members to approve the deal, despite the concessions.

“Going to arbitration was just too much of a gamble for us,” Downey said. Given the state’s weakening economic situation, the arbitrator could have decided to force a new contract on Council 94 that was worse than the deal its members already rejected, he noted.

“There are some members that absolutely hate the idea of [this contract] and voted against it, and there are others who realize what’s happening now economically, and that this may be a way to secure their future,” Grilli said.

The contract ratified yesterday applies only to the 4,000 members of Council 94. Carcieri spokesman Amy Kempe said the state will reach out to other unions who rejected the original agreement, including the National Education Association, to offer them much the same deal.

The handful of unions that approved the first contract are expected to invoke “parity clauses” in their agreements, ensuring equal deals.

But the battle isn’t over just yet. The new contract allows Council 94 to pursue a lawsuit against the Carcieri administration alleging that the recent retiree health benefit changes were unconstitutional. That case was recently moved to federal court.

And there are no guarantees that the state won’t lay off employees if the economy continues in free fall. Kempe said “the governor is not looking at layoffs right now” but noted that the state is facing “very difficult economic times.”

“I hope the governor realizes this is a bitter pill for the membership to swallow,” Downey said. “But we are doing what we can. This is what the governor said he needed and we did our best.”

cneedham@projo.com