Trying to head off more layoffs of cops, San Jose's police union Wednesday tentatively agreed to continue 10 percent pay cuts for at least another year and a half.

The agreement most likely ends a dispute with city leaders that was just days away from being arbitrated and could have doubled next year's budget gap if the salary reductions expired.

"We expect that it will prevent layoffs of police officers next year," said Jim Unland, president of the San Jose Police Officers' Association.

The settlement still must be ratified by officers later this month and approved by the City Council in January. But city officials hailed the tentative pact as another burst of good fiscal news. Just last week, the city's pension actuaries projected that the budget gap for the next fiscal year was $55 million less than once thought, dimming the possibility that libraries and community centers would be forced to close as soon as July.

Police and other city workers took 10 percent pay cuts this year to help close a $115 million budget deficit, the city's 10th in a row. Even with the pay cuts, the city was forced to cut hundreds of jobs and scores of workers were laid off, including 66 officers.

But officers and city leaders disagreed on whether police pay cuts should expire with their one-year contract at the end of June or continue indefinitely until better times allow money for raises, as is the case with other city workers. The officers and city leaders had agreed in their contract earlier this year to let an arbitrator settle that dispute.

Had an arbitrator sided with the officers, the pay cut would expire at the end of June and the city would have an additional shortfall of $25 million in the budget year beginning in July. That would have doubled a deficit that had shrunk to $25 million after the actuaries revised their pension liability figures last week.

The tentative settlement provides that the 10 percent wage cut will remain until it's changed either by a negotiated agreement or an arbitrator.

"The good news on many fronts is that we don't have to be concerned about a significant increase in our shortfall," said Alex Gurza, the city's chief labor negotiator.

The settlement comes amid high tensions between city officials and their unionized workforce over concessions to curb employee costs that have outpaced revenue growth. A key driver of those personnel costs has been retirement pensions, particularly for police and firefighters, that have been enhanced over the past decade. The city's retirement bill has more than tripled from $73 million to $245 million in a decade even as city staffing fell 28 percent and revenues grew 20 percent.

City leaders, in addition to seeking pay cuts and higher health care payments, have asked unions to accept smaller pensions for new workers and for current workers to either switch to a reduced retirement benefit for their remaining years or to pay more for their current plan.

Mayor Chuck Reed on Tuesday led a divided City Council to approve language for a ballot measure to that effect over the objections of officers and other workers who argue that it would violate their legal "vested rights" to their pensions.

Reed hopes to put the measure before voters in June, but he invited workers to continue talks on the language before the measure must be submitted to the registrar of voters in March.

Police and firefighters last week revised their pension reform offer with a proposal to put new workers on the benefit plan that had been in place for decades before a series of enhancements approved by arbitrators or city leaders beginning in the late 1990s. Current officers and firefighters could optionally switch to that benefit.

Gurza said he hopes officers will agree to continue talks about the offer.

Unland said the pension proposal and Wednesday's settlement on the pay dispute show that officers want to resolve the problem through negotiations.

"It should show a stark contrast between the mayor's style and the POA's style," Unland said. "He's still playing the political cards, while we are trying to solve this problem. No one can look at the POA and say we aren't trying."

Reed, who has modified his ballot measure proposal several times in response to concerns raised by police and other workers, said the settlement reflects the impact of another ballot measure he sponsored last year requiring arbitrators to consider the city's financial health in making awards on police and firefighter pay and benefits.

Reed added that he's grateful the officers agreed to resolve the pay cut question and hopeful that they will resume talks on pensions -- on which, he added, police have shown leadership among the city's employees.

"Taking a 10 percent cut is never easy, and selling it to your members is never easy," Reed said. "It eliminates one big uncertainty over next year's budget. This takes one big dispute out of the way."