Legislative Update
New Jersey starts to plan its Budget for the Fiscal year
Each spring Trenton lawmakers begin to map out the budget for the upcoming fiscal year that begins on July 1st. The past few years have been relatively easy, COVID monies have been abundant, adding up to billions in surplus, while the State economy has been on solid footing.
This year’s budget talks have already begun, and they haven’t been rosy. New Jersey is currently staring down a more than $3.7 billion structural deficit as Gov. Phil Murphy prepares to unveil his next — and final — state budget proposal this month. A structural deficit happens when the state spends more money than it will take in from taxes and other revenue sources, having to dip into its surplus fund to balance the taxpayer-funded budget. Murphy has said the state purposefully spent more than it took in to help spur the economy after the pandemic. That, he said, is part of the reason for carrying a large surplus.
With the threat of a fiscal cliff hanging over Murphy‘s last year in office, the governor’s administration has already frozen pay raises for some state workers, curtailed hiring, and asked state agencies to prepare for 5%-10% spending reductions in the upcoming 2026 fiscal-year budget.
Also on the table are potential tax increases on online gaming, alcohol, plus other “sin taxes” while the idea of removing sales tax exemptions on things such as interior design and bowling alleys, though there are currently no talks of broader tax hikes.
Some New Jersey Republicans feel like the state has a spending problem, not a revenue problem. This can be pointed to Murphy’s budgets that have increased spending annually over the last seven years, with a record price tag last year that’s 63% larger than the final budget under Republican former Gov. Chris Christie who left office in January 2017.
One of the big spends that Governor Murphy has done that his previous Governors have ignored is funding the public-worker pension system. Governor Murphy has also added money for school formula aid and tax-relief programs. Credit agencies have upgraded the state’s ratings during Murphy’s tenure.
New Jersey does have a surplus of well over $5 billion. However, Governor Murphy has built this surplus so the state can invest in programs and have a strategic rainy-day fund. Many feel that when the Governor outlines his proposed budget, he’ll use some of this surplus to lessen the current budget deficit to approximately $1.5 billion, a much more manage figure.
The federal government is huge wild card in this process as well. New Jersey received $22 billion in federal funding to support 609 state programs in the last fiscal year, according to a recent report from Murphy’s office. The state gets $1.2 billion from the U.S. Department of Education alone. Trump has floated plans to eliminate that agency.
Federal funds also help pay for housing and food assistance for low-income residents, prisons, environmental programs, health and drug research, and mental health services, among other items. It’s also worth noting that 15% of the state workforce is federally funded.
The final piece to this complicated puzzle is that all 80 members of the New Jersey Assembly are up for election. There is also a very crowded Governor’s race, the winner from the Democrat party will have to run on this budget if in fact it does carry new taxes this November.
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