A five-year police contract handed down by an independent arbitration panel this morning includes what Mayor Nutter called "unprecedented" long-term concessions on benefits, but comes with steep price in short-term wage increases.

City police officers will receive a 7 percent raise over the course of the next three years, with the ability to negotiate for further pay increases in the last two years of the contract. That will cost the city more than $20 million annually for the next five years.

The police also won a concession they have sought for years - a partial end to the requirement that police live in the city. All officers with five years on the job will be eligible to move out of the city by 2012.

The raises come in the form of a three percent hike in year two and four percent in year two, with no raise the first year, giving Nutter some breathing room for the next six months before the first raises take affect.

"The changes in the management and cost of health care and pensions... are without precedent," Nutter said in an afternoon news conference.

The contract immediately cuts health care costs $200 per officer in the next six months, and allows police to maintain their current health care, but with higher co-pays next year, as the FOP agrees to a new, pay-as-you-go policy in which the city pays medical bills as they come in. Currently the city pays a per-employee fee to the union which often exceeded actual costs.

The city will also save between $6 million and $9 million over five years in pension costs; new employees will have to contribute 20 more than current employees to maintain current benefits or join a new, cheaper pension plan.

"These are unprecedented times, times like nobody's seen in a long time," said FOP President John McNesby. "I think what this award does some things for both sides."

Contact staff writer Jeff Shields at 215-854-4565 or jshields@phillynews.com.