Baltimore's school board has agreed with the teachers union to grant raises, the first increases for city educators in three years.

The two-year contract must be formally ratified by union members and the school board. It would grant employees an immediate 2 percent raise, followed by an additional 1 percent increase in January.

In the 2006-2007 school year, teachers and paraprofessionals would receive a 5 percent raise. The employees also will continue to receive step increases tied to length of service.

During a contentious year of negotiations, the union unsuccessfully sought raises for its members for the academic year that recently ended. The school board has been working to eliminate a $58 million budget deficit incurred two years ago.

The teachers union represents 6,700 teachers and 1,500 aides, school officials said. The agreement is likely to be approved for all 11,000 school system employees because the school board usually offers the same raises to other bargaining units.

The across-the-board and step increases for all employees are expected to cost the school system $60 million over two years, said Patricia Welch, chairwoman of the school board. The board also agreed not to demand that teachers pay more for health insurance, although health care costs have increased.

"There has been a lot of give-and-take, but we think what we have come up with will be agreeable and acceptable to the teachers," Welch said.

Teachers union President Marietta English said the union had asked for larger raises than the board agreed to.

As part of the agreement, the union pledged to abandon its dispute over raises for the past school year.

In the District, contract talks remain unresolved between teachers and the school system more than eight months after the previous contract expired. The negotiations began in November.

Union officials have said they expect a significant pay raise given the demands of adapting to D.C. School Superintendent Clifford B. Janey's plans to implement new learning standards, curriculum, textbooks and student testing next school year. School officials have noted that there is no money in next year's budget to pay for raises in a new contract.