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 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 vs. Williams, was filed by the Florida Education Association after lawmakers passed and Gov. Scott signed the pension bill into law. It took effect July 1, 2011.
The ruling effectively shifts Florida's retirement system from a noncontributory 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.
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 schoolteacher, 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."
He said the state's action "constitutes a confiscation of private property of a few for a public use" and concluded that all public employees "who were members of the FRS prior to July 1, 2011, have had their contract rights violated.''
Perry said the action by lawmakers amounted "to an insufferable and unconstitutional 'bait and switch' at the expense of public employees.''
But Pariente defended the ruling and, in her concurring opinion, said the decision should not be viewed narrowly.
"Ultimately, I recognize the frustration of state employees who have in effect experienced a 3 percent reduction in their net pay as a result of the Legislature's changes to the retirement plan,'' Pariente wrote. "Indeed, these changes affect judges and all judicial branch employees as well. However, this case is not a referendum on the Legislature's policy decision."
Union officials disagreed with the ruling, some vowing to use it to replace the governor and Republican-led Legislature in the 2014 election.
"Balancing the state budget on the backs of middle-class working families is the wrong approach for legislative leaders and the governor to take,'' said FEA president Andy Ford. "The 2014 campaign begins today."
Matt Puckett of the Florida Police Benevolent Association said that while members "obviously are disappointed" they hope to keep future pension system reforms to a minimum.'
Joe Vitalo, president of the Hernando Classroom Teachers Association, said the decision will mean that about $2.5 million will be taken out of the local economy to pay for the retirement contribution of the 3,100 employees in the county system.
Lawmakers argued at the time that the change was needed to fill a $3.6 billion budget gap and bring Florida in line with 47 states that require their government workers to contribute to their pension plans. The savings were then plowed into the budget, not into the retirement fund.
Union leaders said they hope the improved fiscal conditions will allow lawmakers to grant state employees pay raises for the first time in six years.
The Senate budget chief, Joe Negron, R-Palm City, said the issues aren't linked: "We're well aware that state workers haven't had a raise in six years, as is the case with the private sector. It's one thing we'll consider."
But some lawmakers are already viewing the money as a budget windfall.
The House budget chief, Seth McKeel, R-Lakeland, said that if current conditions hold, the ruling provides lawmakers with needed certainty this budget year and "Florida will be able to have a more normal budget."
Times staff writers Michael Van Sickler and Danny Valentine contributed to this report.