The Washington Teachers Union and the D.C. schools are near agreement on a new contract that would increase the District's rank in starting pay from last place among major area school systems to third place behind Fairfax and Montgomery counties.

Negotiators for both sides said a tentative agreement on a new contract could be reached as early as this weekend. Talks, which have been under way since summer, continued yesterday, centering on three sticking points:

Pay. The District's current starting salary of $19,100, lowest among the large Washington area school systems, is often cited as a deterrent to recruiting good teachers. The latest school system proposal would raise starting pay to about $21,500, placing the District behind only Montgomery and Fairfax counties, which pay $22,000 to new teachers.

Union president William Simons said he has asked for a starting salary of $23,000. Simons and Parents United, the District activist group, argue that D.C. salaries must be higher than those of surrounding systems to compensate for the difficult working conditions and higher rents in the city.

But school board president Linda Cropp (Ward 4) said that although "the board is committed to making our salaries competitive with neighboring jurisdictions," "competitive" could mean "in the range" of other systems, rather than highest of all.

The union has also proposed to decrease the number of years it takes teachers to reach the top salary from 15 to 12. The school system so far has declined to make that change. Suburban systems pay senior teachers considerably more than the District does. For example, Montgomery County pays teachers at the top of its scale $44,517, while the top D.C. salary is $39,517. Length of school day. Parents United's recent report on the teacher contract suggests that 30 minutes be added to the school day in the District to make the day as long as those in suburban systems.

Simons said the union has resisted any effort to lengthen the day "because the administration has no plan for what to do with the extra time."

Cropp refused to discuss the work day issue, saying that it is "being negotiated."

School board member Bob Boyd (Ward 6) said that although he supports a longer school day, the union argument has merit. "The administration doesn't really have specific plans for using the extra half hour," he said. "I'd like to see it used for tutorials for at-risk children." Health benefits. The school board has proposed that the administration take over control of funds allotted to teacher health benefits. Union management of those funds in recent years resulted in canceled insurance policies and a chronic problem with late payments.

But Simons has fought to maintain union control, arguing that since he won back his post as president only last spring, he should be given a chance to clean up the mess.

The contract, which governs relations between the school system and its 6,000 teachers, is to be a three-year agreement, retroactive to last September, when the previous pact expired.

Simons said the differences between the union and the system are narrow enough that "I hope we will see the smoke rise from the chimney this weekend."

"We're still talking and that is always a good sign," said school system negotiator Kenneth Nickoles.

In other developments, Cropp said yesterday that board member R. David Hall (Ward 2), her predecessor as president, will continue to run the committee conducting the search for a successor to Superintendent Floretta D. McKenzie.

Hall expects the search committee to begin next week to sift through applications. The 13-member committee's timetable calls for it to produce a list of up to 10 finalists by March 30.

Also yesterday, the U.S. Labor Department dismissed allegations against the Washington Teachers Union stemming from its election last spring. Simons' predecessor, Harold Fisher, and another candidate had alleged irregularities in the voting that gave Simons the presidency.