City leaders were optimistic Friday that they had averted a major budget battle with city employees.

Leaders of the city’s police and fire unions reached a tentative agreement late Friday afternoon with City Hall over labor contracts for 2010.

The contract would give both groups a 0.5 percent general wage increase, which is less than the 1.5 percent increase the groups received this year.

The proposed agreement also would boost the amount of money the city sets aside for other city employees who are not part of the fire or police unions. The city originally had proposed increasing the amount of money set aside for merit raises to general employees by 1 percent. The city is now proposing that be increased to 1.25 percent. Police and fire employees under the agreement would receive the 0.5 percent general wage increase, and also would be eligible for merit pay increases. General city employees only would be eligible for merit increases.

The agreement would require an extra $80,000 in the city’s budget, which would come from the city’s fund balance account and would not require an increase in the property tax mill levy.

The unions and the city were at impasse and were scheduled to argue their cases before city commissioners on Tuesday evening.

Leaders with both unions said they were pleased, although their memberships still must ratify the agreements next week.

“Negotiations were tough, but they are supposed to be tough during these type of times,” said Detective Mike McAtee, chair of the police officers association. “But the mayor really stepped up and worked hard behind the scenes to get both sides to come together.”