Money for raises at the University of Victoria will be found through an ongoing process of cutting budgets throughout the institution, spokesperson Bruce Kilpatrick said.

Last week the Professional Employees Association reached a tentative agreement with the university that provides a two percent raise retroactive to July 1, 2012 and another two percent next July 1.

The deal was reached under a provincial government policy called "co-operative gains" that requires any wage increases to be funded out of the existing budget, without reducing services or adding costs for taxpayers or ratepayers.

"The agreement was reached keeping the co-operative gains mandate fully in mind," said Kilpatrick, who added it's very good news to have the agreement settled without any major disruption. "The university understands what the implications will be."

There are several union locals plus the faculty association at UVic, and the PEA is the first to reach a tentative agreement under the co-operative gains mandate, he said.

In the fiscal year that ended March 31, 2012, UVic spent $253 million on salaries, which is more than half its operating budget for the year, according to the school's financial statements. Increasing the amount spent on salaries by four percent would cost $11 million a year.

Kilpatrick said the government has made it clear it won't be giving public bodies more money to pay for raises, but that he couldn't say specifically what would be cut to meet the co-operative gains mandate.

However, he said the university has been able to plan for the anticipated increased salaries and every unit is required to cut 1.5 percent from its budget in 2012-2013 and four percent in 2013-2014. The measures are expected to save about $3 million this year and $7 million next year, he said.

For example, negotiating a courieur contract with a single company that everyone at the university will use is expected to save $200,000 a year, he said.

"The university has to be confident it can manage savings that will account for the increases," he said. "It's a challenge."

UVic President David Turpin earlier this year was among 22 university and college presidents who in a letter warned then advanced education minister Naomi Yamamoto that the co-operative gains mandate would "exacerbate" the strain caused by stagnant funding in recent years.

Melissa Moroz, a labour relations officer with the PEA said that while the union would have liked larger wage increases to make up for recent years where there were no raises, the tentative agreement was the best that could be reached under the circumstances.

Andrew MacLeod is The Tyee’s Legislative Bureau Chief in Victoria. Find him on Twitter or reach him here.