Mayor Bloomberg was able to keep a lid on the city’s labor costs last year, which rose a modest 3%, according to a new report by the New York City Independent Budget Office. While that was the smallest growth in labor costs in three years, however, it resulted largely from the administration’s inability to reach labor settlements with teachers and with police and other uniformed personnel, the report says.

Labor costs totaled $23.9 billion in 2004, a $737 million increase from 2003. Although the city workforce grew by 3,000 in 2004 to nearly 297,000, there were roughly 10,000 fewer city workers than in 2001, the last year of the Giuliani administration. Total wages and salaries paid to city employees actually decreased by 1%, the IBO report says.

“This stability in compensation occurred because contracts with most union employees had expired,” the author of the study, Derek Kershaw, said. “The average base salary for teachers remained roughly constant due to the expiration of the teachers’ union contract in May 2003.”

The biggest component of additional gross pay, the report found, remains overtime for uniformed workers. It grew by $30 million. Firefighters received the most overtime pay in 2004, an average of $11,468 apiece.

From 2005 through 2008, the annual rate of increase in spending on labor was projected at 2.5%, under the assumption that teachers and uniformed personnel will receive raises modelled after the contract the city struck with District Council 37 in 2004.That calls for financing pay increases from 2005 forward with more employee productivity.

But the report concluded: “That is a questionable assumption, particularly because more than half of fiscal 2005 has passed. If labor negotiations lead to larger settlements, each 1% increase above the pattern will cost the city about $150 million for each year the increase is in effect.”