By Nikita Biryukov | New Jersey Monitor
Gov. Phil Murphy is proposing the state spend a record $58.1 billion in its next budget year, calling for a series of revenue raisers in an attempt to bridge New Jersey’s deficits but largely avoiding broad-based tax hikes whose impact would be widely felt ahead of November’s elections.
In his annual budget address to the Legislature, Murphy called for the state to spend $1.2 billion more than it takes in through taxes and fees, a reduction from the $2.2 billion structural deficit signed into law last June, but maintained his commitments on pension payments, K-12 school aid, and property tax relief.
“Given the global economic disruptions — especially inflation — that have battered the American people over the past few years, it’s really no wonder that our working neighbors feel as if they’ve been forgotten by those of us in power,” Murphy told a joint legislative session Tuesday. “So, to every New Jerseyan who shares these concerns, here is my message to you: Our administration is going to spend every minute we have left fighting for you.”
Murphy’s plan would see New Jersey end the 2026 fiscal year with $6.3 billion in surplus.
“With this proposal, we’re getting New Jersey’s budget back on the road toward balance, so we can uphold our obligation to keep our fiscal house in the best shape possible, because, as always, we owe it to the people we serve to lead honestly and responsibly,” Murphy said.
This is the final budget plan of Murphy’s second term. A Democrat, he is barred from seeking a third term this November, and a host of Democrats and Republicans are vying in June to win a spot on November’s ballot to succeed him. All 80 Assembly seats will also be up for grabs this year.
Lawmakers will now take over the budget process, holding hearings over the next several months before finalizing a budget by the June 30 deadline.
Under Murphy’s plan, the state would expand its sales tax, removing exemptions for vehicle trade-ins, digital services, and boats, among several other things. Those changes are expected to bring in roughly $270 million in the fiscal year that begins July 1.
The proposal also calls for the state to raise tax rates on online gambling and internet sports betting to 25%, from 15% and 13%, respectively. Those changes would bring in an additional $402.4 million but would still leave New Jersey with online gambling tax rates below that of its neighbors.
New York, Rhode Island, and Delaware tax online gambling winnings at no less than 50%, and Pennsylvania — which has the lowest tax rate of New Jersey’s neighbors — charges a 36% tax on online winnings.
The plan proposes doubling a 1% tax on property sales worth more than $1 million to 2%, with a 3% fee for property purchases in excess of $2 million. Together, those changes are expected to raise an additional $317 million.
Murphy is also urging legislators to raise excise taxes on cigarettes, electronic cigarettes, and alcohol. Excise taxes are often imposed on manufacturers and sellers, who generally pass them along to consumers.
His plan would raise taxes on cannabis from $2.50 per ounce to $15 per ounce, raise fees to obtain firearm purchaser ID cards and related documents, and introduce a new excise tax on guns and ammunition.
It would also levy a 40-cent monthly charge on landlines, collecting about $61 million meant to fund the state’s 988 mental health crisis hotline through a fee reminiscent of how the state funds 911 systems.
The proposed budget calls for $4.3 billion in direct property tax relief, including the first benefits to be paid out under the nascent Stay NJ program, which promises to cut seniors’ property tax bills in half, to a cap of $6,500.
“And let me explain, if I may, what this relief means in real terms. Back in 2018, the average, eligible homeowner in New Jersey received $246 in property tax relief. This year, that average tax relief payment will be over $1,500 — a more than 500% increase in just seven years,” Murphy said to applause from lawmakers.
Stay NJ will pay a half-year award in the fiscal year that begins July 1 because of a mismatch between the calendar and fiscal years. It remains unclear how lawmakers plan to fund it in future years, when its annual cost is estimated to rise to $1.2 billion. The state is set to pay $280 million into Stay NJ in fiscal year 2026, bringing total investment since fiscal year 2024 to $600 million.
The legislation approving Stay NJ requires the program to pause if state reserves fall below a certain level. Though Murphy’s plan for the next fiscal year has the state’s surplus below that level — 12% of state spending — the administration is moving forward to fund the program anyway and lawmakers will likely give their approval. Last year, lawmakers also moved ahead with funding Stay NJ even though the surplus was expected to dip below 12%.
Rewards under the Anchor property tax relief program would be unchanged in the coming fiscal year under Murphy’s plan.
The governor’s proposal calls for the state to pull $250 million out of its debt defeasance and prevention fund — which is meant to pay down existing debt or avoid borrowing altogether to ease interest — to underwrite state spending.
The spending proposal calls for cuts elsewhere in the budget. Funding for higher education covering both direct support to colleges and universities and various tuition assistance programs would be reduced by a collective $184 million, a reduction of roughly 5.5%.
“Every responsible budget, including this one, requires hard decisions — like scaling back programs that we would rather increase funding for — we can, and we must, make those decisions while also keeping our promises, whether it be making the full payment into our pension system or fully funding our public education system,” Murphy said.
The possibility of stark shifts in federal aid to states leaves this year’s budget filled with uncertainty. New Jersey expects to receive $27.9 billion in federal dollars for the coming budgetary year, but it remains to be seen whether the Trump administration will leave those funds intact. If they go, the state risks falling into a fiscal crisis.
“While I sincerely hope that the situation in Washington settles down, and that we — in turn — have a normal, healthy budget season over the next few months, that is by no means a guarantee,” Murphy said. “There is a distinct possibility that we will, instead, need to pursue a ‘break the glass’ strategy.”
What such a strategy looked like, the governor said, remained yet unclear.
New Jersey Monitor is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. New Jersey Monitor maintains editorial independence. Contact Editor Terrence McDonald for questions: info@newjerseymonitor.com. Follow New Jersey Monitor on Facebook and Twitter.
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