The city of Miami and its police union are “extremely close” to reaching a deal that would help Miami plug a $40 million budget hole, Fraternal Order of Police Vice President Javier Ortiz said.

Parties close to the negotiations said the two sides reached consensus Wednesday on a two-year contract that would modify the current pension system. If adopted, the city would revamp how it calculates retirement benefits, and employees would be asked to contribute more to their pension plans.

The proposed contract also would enable the department to purchase at least 100 new police cars, as well as new uniforms and equipment.

“There would be some concessions,” Ortiz said. “But it would also be a great deal for the police department and the city.”

Miami has until the end of the month to balance its $485 million operating budget.

Initially, City Manager Johnny Martinez declared a state of financial urgency, a legal maneuver that would have allowed the City Commission to force employee concessions. But the FOP sued, arguing that the commission — not the manager — should have invoked the law. A judge agreed and voided Martinez’s action.

City attorneys are appealing the ruling. The city and the FOP will make their case to the Third District Court of Appeal Thursday.

But even if the appeals court empowers Martinez to declare financial urgency, Mayor Tomás Regalado said he would rather reach an agreement with the police union than have the commission force concessions, as they did in 2010.

“We don’t want to be confrontational,” Regalado said. “Consensus is the best scenario.”

City negotiators and FOP leaders will meet again Tuesday morning. Any agreement must be ratified by union members and approved by the City Commission.

Commission Vice Chairman Marc Sarnoff said Wednesday’s talks with the police union represented an important step forward.

“This will turn morale around,” he said.

Negotiations with the firefighters, sanitation workers and general employees unions are ongoing.

Firefighters union President Robert Suarez characterized his talks with the city as “productive,” but said there were still many details to iron out.

“I think we can come to an agreement by October,” Suarez said.

The first budget hearing is scheduled for Sept. 13.