TALLAHASSEE -- In a major victory for Gov. Rick Scott, the Florida Supreme Court narrowly ruled against state workers in allowing the state to retain the 3 percent levy on their salaries to offset the state’s investment into the Florida Retirement System.

The 4-3 decision allows lawmakers to avoid what they expected could be a nearly $2 billion budget hole in the 2013-14 budget year caused by having to pay back workers. It also means that state and local workers in the Florida Retirement System will see their salary cuts remain indefinitely and will no longer receive cost of living adjustments to their retirement accounts.

The lawsuit, Scott v. Williams, was filed by the Florida Education Association after lawmakers passed and Gov. Rick Scott signed the pension bill into law. It took effect July 1, 2011.

The ruling effectively shifts Florida’s retirement system from a non-contributory to a contributory pension plan for the 623,000 workers in the system, including teachers, firefighters, police and other state and local government employees.

The annual savings to the state is estimated at $861 million a year.

Gov. Rick Scott and legislative leaders hailed the ruling as victory for Florida taxpayers, while unions decried it as a short-sighted attempt to balance the state budget on the backs of state workers.

“The court’s ruling today supports our efforts to lower the cost of living for Florida families,” Scott said in a statement. “ This means even more businesses will locate and grow in our state, which creates even more opportunities for Floridians to live their version of the American dream. ”

State Senate President Don Gaetz said the changes were necessary "to maintain a sound retirement system” and that “Florida taxpayers can no longer bear the full cost of this benefit."

But Ron Meyer, an attorney who argued the case for the FEA, challenged Scott’s rosy view.

"It’s a great day for Florida families if starvation is a good thing,’’ he said. "The fact of the matter is a school teacher, a policeman, a state worker, all these public employees, can scarcely afford a 3 percent reduction in their pay.’’

The decision, written by Justice Jorge Labarga, overturned a lower court ruling that declared the pension changes unconstitutional because they impaired the contractual rights of the FRS employees, took private property without full compensation and violated employee collective bargaining rights.

Labarga cited a 1981 ruling involving the Florida Sheriffs Association and upheld the constitutional right of the Legislature to revise the retirement contract with existing state workers.

“We recognized the authority of the Legislature to amend a retirement plan prospectively, so long as any benefits tied to service performed prior to the amendment date are not lost or impaired,’’ the ruling said, noting that the court “took special care in Florida Sheriffs” not to bind future legislatures.

Justices R. Fred Lewis, Peggy Quince and James E.C. Perry strongly disagreed with the ruling. Lewis and Perry wrote separate dissenting opinions. Justice Barbara Pariente wrote a concurring opinion.

Lewis accused the state of failing to meet its burden to prove it had a good reason to break the contract with state employees “because facing a budget shortfall is not enough.”