The highly anticipated contract negotiations between the teachers union and the city are officially off and running.

In anticipation of the UFT contract’s October 31 expiration date, officials from both sides met yesterday to begin the negotiation process. The negotiations are colored by the city’s dismal financial projections and the upcoming mayoral election — the UFT has yet to endorse a candidate for mayor. They are also UFT president Michael Mulgrew‘s first significant challenge, and are likely to be a factor when he comes up for election in the spring.

Though both sides have signed confidentiality agreements allowing them to keep mum when the press pushes for details, neither has been entirely silent about changes they’d like to see made to the contract.

Chancellor Joel Klein has made no secret of his desire to see the Absent Teacher Reserve drained. The pools currently holds 1,695 teachers who previously worked in schools that have been closed. Though they remain on the city’s payroll, they do not have full-time teaching positions. The point of tension between Klein and the UFT is how to drain it.

On Wednesday, the first day of school, Klein reiterated his support for Chicago’s model, which allows teachers who’ve been laid off to spend one year searching for a new spot in the school system while receiving their regular salaries. At the end of that year, those who haven’t landed new positions are forced to move on.

In 2008, when a report by the New Teacher Project drew attention to the cost of the ATRs, then-UFT president Randi Weingarten responded by saying that the city should freeze hiring until all of the excessed teachers had found work.

With the hiring freeze in place and the reserve pool shrinking, union insiders and budget analysts say that the union might be willing to take up the issue. A recent report that the city has allocated 4 percent salary increases for teachers over each of the next two years has fueled speculation that the new contract will trade higher pay for layoffs within the ATR pool.

Delivering pay raises to teachers will not be the easiest move for the city to make right now.

“Personnel costs are the biggest single piece of the city budget and it’s been a growing piece,” said Independent Budget Office spokesman Doug Turetsky.

According to the IBO, in 2003, wages for city employees were 53 percent of the city’s budget. In the current fiscal year, as the city struggles to cut costs, wages are projected to be over 60 percent of the budget.

The UFT’s contract negotiations come after other unions have won pay raises from the city, possibly establishing a pattern for its own bargaining.

“The basic pattern was set when the economy wasn’t as grim,” said Charles Brecher, executive vice president of the Citizens Budget Commission. “The city is going to have to reconsider this and break the pattern,” he said.

Brecher said his organization will release a report in early October with a set of recommendations for what the city should seek in the contract negotiations.

“I think the concern is that some of the non-salary issues get taken up in a serious way,” he said, adding that merit pay and financial incentives to attract math and science teachers ranked high on the Commission’s list of hoped-for changes.

Sol Stern, a senior fellow at the Manhattan Institute, detailed his own policy suggestions in an article in City Journal, in which he called for abolishing teacher bonuses and shorter contracts in select schools.

Another issue that often dominates union contract negotiations, pension plans, was taken up by the UFT and the city this summer. In a deal reached in June, they agreed to roll back pension benefits for newly hired employees and, in exchange, scrapped the two work days before Labor Day that were added to the work year in the last contract negotiation.