Governor Murphy’s final budget proposal will set in place his legacy. Will his administration be able to follow through on its promise of balancing strong investments in schools and pensions with robust revenues that pay for those investments? Or will the budget fall back on cutting critical programs and one-time gimmicks, hurting working families now and the state’s fiscal footing in the future? As NJPP noted last year when the FY 2025 budget passed, the $2.1 billion structural deficit must be closed with new revenues to avoid a return to underinvestment and shortsighted cuts.[i]
In addition to setting the state’s path for the next administration, this budget must prepare our state for an unclear federal future. Congressional and executive dysfunction threatens to jeopardize critical federal funds — ranging from health insurance and food assistance to environmental protection and transportation infrastructure. For context, federal revenues contribute $27.5 billion to state programs, compared to $56.7 billion from state revenues.[ii] Even minor disruptions in federal funding could result in substantial pain for families and people living in New Jersey and the programs they depend on.
While threats from the federal level will make it difficult for New Jersey’s elected officials to meet their goal to make the state more affordable for residents, there are key areas where the state budget can improve affordability by directly assisting working-class and middle-class families, such as improved family tax credits and health insurance. However, these effective affordability measures will be difficult to expand without either increasing revenues or cutting back on tax breaks for wealthy households and big corporations.
Ahead of Governor Murphy’s budget address for Fiscal Year (FY) 2026, NJPP has identified the following key benchmarks and priorities to evaluate whether the next state budget sufficiently advances economic, social, and racial justice:
Protect the Surplus and Close the Deficit
The threat of federal funding volatility adds urgency to ensuring a robust surplus. With only $6.2 billion left in surplus compared to a $56.6 billion appropriation, the state has only enough revenue to sustain 40 days of government operations.[iii] With the state surplus shrinking rapidly due to structural budget deficits, the state must find additional revenue and end wasteful corporate subsidies to retain budget reserves.
Beyond the good practice of having substantial reserves to withstand economic downturns, the state faces threats at the federal level from congressional or executive branch proposals to weaken or cut existing programs, including:
- Disaster relief funding,[iv]
- Infrastructure funding for key programs like the Gateway Tunnel,[v] and
- Potential cuts to key social safety net programs such as Medicaid, food assistance, and Temporary Assistance for Needy Families.[vi]
For example, any reduction in Medicaid funding would result in an enormous shortfall to a program that sends nearly $13 billion in federal funds to the state each year.[vii]
Fully Fund Pensions and Schools
New Jersey has maintained its commitment to funding pensions and schools after years of disinvestment, and doing so has helped to improve the state’s fiscal standing while following through on its obligations to its workers and residents.[viii] However, as the structural deficit makes additional spending on legislative priorities difficult, lawmakers may seek reductions in school and pension funding to help pay for pet projects. This would jeopardize the state’s credit rating, which has been sustained by robust surpluses and full pension payments. New Jersey has already seen the high cost of paying for past mistakes in underfunding the pensions,[ix] and schools need more, not less, funding to meet their goal of high-quality education for all students.[x]
Raise Revenues to Balance the Budget
One straightforward answer to the state budget’s structural budget deficit is to raise sufficient revenues to pay for the state’s investments and infrastructure. NJPP has proposed a package of revenue raisers that would adjust taxation for wealthy individuals and large corporations to raise roughly $4 billion to ensure that the state government has sufficient revenue to pay its bills and maintain its long-term investments.[xi] New Jersey can and should take steps to improve its tax system to take the state on a path toward fiscal responsibility, generate sufficient funds to invest in growth and affordability, reduce income and economic inequity, and ensure the wealthy pay their fair share. The proposal includes:
- $410 million from expanding the fee on sales of very expensive homes to fund affordable housing
- $772 million from raising marginal tax rates on people earning more than $2 million a year
- $888 million from requiring large corporations to pay taxes on all their profits, including profits currently reported in foreign tax havens, and
- $385 million from funding more auditors to pursue tax avoidance and evasion.
Maintain StayNJ’s Guardrails
The StayNJ proposal, a subsidy program for senior homeowners, is an expensive program providing the bulk of its benefits to wealthier residents while leaving lower-income seniors with limited to no benefit.[xii] Fortunately, lawmakers included guardrails requiring that the state maintain at least a 12 percent surplus before the program can send out its checks.[xiii] The fiscal year 2025 budget failed to reach that benchmark, reaching less than 11 percent of the total budget.[xiv] A healthy surplus is even more critical now due to the volatility in federal funding, so the state should abide by the original statute and avoid spending hundreds of millions of dollars on a new expensive benefit without ensuring the state can pay all its existing bills.
Maintain Funding for Services for Immigrants
Immigrants make up nearly roughly 1 in 4 New Jersey residents, and the state budget has funded programs for immigrants in recent years to fill gaps left by restrictions on federal funding for noncitizens. Given recent attacks on immigrants regardless of status and increases in deportations, New Jersey should maintain or increase funding for:
- Cover All Kids health insurance coverage for all children regardless of immigration status
- Detention and deportation defense legal assistance
- Legal representation for children and youth, and
- Office of New Americans coordination to connect immigrant residents to services such as child care and job training.
Expand and Improve Tax Credits for Working Families
Despite repeated calls by lawmakers to make the state affordable for all in the last budget, the state did not expand two critical family tax credits to support affordability for working families – the Child Tax Credit and the Earned Income Tax Credit. These credits effectively reduce poverty by giving money back directly to families who need it through their tax refund each year.[xv] Both programs need increased funding and expanded eligibility to reach more families.[xvi] Even in a tight budget year, small increases in benefits or expansions in age eligibility would directly help more families afford life in the state.
Increase Benefits in WorkFirst NJ to Reduce Poverty
With all safety net and cash assistance programs under threat of federal cuts, it is even more urgent for the state to ensure that the lowest-income residents can meet the high cost of living in the state.[xvii] New Jersey’s benefits for WorkFirst New Jersey, its cash assistance program for very-low-income households, remain woefully inadequate, with less than $7,000 annually for a family of three.[xviii] To improve affordability, the budget should start by expanding the WorkFirst New Jersey grant amount to get closer to the state’s actual cost of living.
Expand Affordable Health Insurance Options
New Jersey’s considerable progress in reducing the uninsured rate for children and adults faces serious federal threats, ranging from possible work requirements for Medicaid to expiring subsidies for marketplace plans. To prepare for these threats, the state budget should set money aside to ensure that families can continue to afford care by:
- Creating a buy-in option for NJ FamilyCare plans
- Opening the marketplace and its subsidies to all eligible residents, regardless of immigration status, and
- Fully funding existing coverage expansion programs such as Cover All Kids.[xix]
Keeping all the state’s residents insured helps keep the state healthier and more affordable.
Keep the Corporate Transit Fee Funding Transit
Last year, New Jersey dedicated funding in the state budget for New Jersey Transit for the first time, creating the Corporate Transit Fee on corporations with more than $10 million in profit.[xx] The fee represented an enormous step forward for stable funding of this critical infrastructure. However, just one year later, lawmakers may raid Corporate Transit Fee revenues to help fund their other priorities in a tight budget, as they have with other dedicated funds such as the Clean Energy Fund.[xxi] This would be a mistake for our economy and for riders: New Jersey Transit desperately needs the funds from the fee to pay for essential operations, as riders face long delays, uneven service, and fare hikes.[xxii] New Jersey’s mass transit has dealt with decades of disinvestment due to raids and shortsighted decisions to underinvest; the Corporate Transit Fee must remain with transit.
Use the Clean Energy Fund on Clean Energy
Thanks to the Corporate Transit Fee, this budget also represents an opportunity to ensure that clean energy funds are not diverted to NJ Transit to pay for basic maintenance instead of its intended purpose of promoting the use of clean energy.[xxiii] Rather than go to basic operations, these dollars should be earmarked with specific language in the budget to ensure that they support transitioning the agency’s buses, trains, and buildings to green energy and zero emissions.
End Predatory Prison Communication Fees
Despite evidence that communication with family and community members can reduce recidivism for people in incarceration, New Jersey still requires the families of people who are incarcerated to pay private contractors for phone and video calls with their loved ones. The state should pay for these services and eliminate the $15 million in fees these families currently pay to contact their loved ones.[xxiv] The cost to the state would amount to roughly 1.4 percent of the overall $1.1 billion state correctional department budget.[xxv]
End Notes
[i] Peter Chen et al., New Jersey Policy Perspective, New Jersey Chooses People Over Profits in the Fiscal Year 2025 State Budget, June 28, 2024, https://www.njpp.org/publications/blog-category/new-jersey-chooses-people-over-profits-in-the-fiscal-year-2025-state-budget/.
[ii] New Jersey Department of the Treasury, Office of Management and Budget, The State of New Jersey Appropriations Handbook Fiscal Year 2025 (2024), p. D-16, C-2, https://nj.gov/treasury/omb/publications/25approp/AppropriationsHandbookFull.pdf
[iii] 42 days calculated by dividing the projected closing balance ($6,197,868) by total appropriations ($56,613,303). See New Jersey Office of Legislative Services, Fiscal Year 2025 Appropriations Bill (P.L.2024, c.22 with Line Item Veto and Revenue Certification) (2024) p. 1. https://pub.njleg.state.nj.us/publications/budget/Scoresheet_FY_2025_Appropriations_Act_(P.L.2024,_c.22).pdf
[iv] Lauren Peller, Speaker Mike Johnson suggests ‘conditions’ needed on disaster aid for LA wildfires, ABC News, Jan. 13, 2025, https://abcnews.go.com/Politics/speaker-mike-johnson-suggests-conditions-needed-disaster-aid/story?id=117636693
[v] Colleen Wilson, Could Trump executive order hold up money for NJ Transit projects, Gateway tunnel?, NorthJersey.com, Jan. 27, 2025, https://www.northjersey.com/story/news/transportation/2025/01/27/could-trump-order-block-money-for-key-nj-transit-projects/77912637007/
[vi] House Ways and Means Committee, Untitled memo on list of possible cuts to the federal tax reconciliation bill, Jan. 23, 2025, available at Read: Draft Options for G.O.P. Cost Cuts for Tax Bill, N.Y. Times, Jan. 23, 2025, https://www.nytimes.com/interactive/2025/01/23/us/politics/republican-tax-spending-cuts-options.html.
[vii] New Jersey Department of the Treasury, Office of Management and Budget, The State of New Jersey Appropriations Handbook Fiscal Year 2025 (2024), p. D-6, https://nj.gov/treasury/omb/publications/25approp/AppropriationsHandbookFull.pdf.
[viii] Peter Chen et al., New Jersey Policy Perspective, Evaluating Governor Murphy’s Budget Proposal for Fiscal Year 2025, Mar. 8, 2024, https://www.njpp.org/publications/report/evaluating-governor-murphys-budget-proposal-for-fiscal-year-2025/
[ix] Gordon MacInnes & Sheila Reynertson, New Jersey Policy Perspective, The Notorious Nine: How Key Decisions Sent New Jersey’s Financial Health Spiraling Down Over Two Decades, Sept. 2016, https://www.njpp.org/wp-content/uploads/2016/09/NJPPNotorious9Sept2016.pdf.
[x] Bruce Baker & Mark Weber, New Jersey Policy Perspective, Unlocking Academic Success: Revitalizing New Jersey’s School Funding Formula for Student Achievement, Sept. 14, 2023, https://www.njpp.org/publications/report/unlocking-academic-success-revitalizing-new-jerseys-school-funding-formula-for-student-achievement/
[xi] Peter Chen, New Jersey Policy Perspective, Fair and Square: Changing New Jersey’s Tax Code to Promote Equity and Fiscal Responsibility, Nov. 14, 2024, https://www.njpp.org/publications/report/fair-and-square-changing-new-jerseys-tax-code-to-promote-equity-and-fiscal-responsibility/.
[xii] Peter Chen, New Jersey Policy Perspective, How StayNJ is Even More Regressive Than at First Glance, Jun. 24, 2024, https://www.njpp.org/publications/blog-category/how-staynj-is-even-more-regressive-than-at-first-glance/.
[xiii] P.L. 2023, c.75, at C.54:4-8.75m.17.e. https://njleg.state.nj.us/bill-search/2022/A1/bill-text?f=PL23&n=75_
[xiv] The fiscal year 2025 $6.198 billion unreserved balance is roughly 10.9 percent of the state budget’s overall appropriations of $56.613 billion. New Jersey Office of Legislative Services, Fiscal Year 2025 Appropriations Bill (P.L.2024, c.22 with Line Item Veto and Revenue Certification) (2024) p. 1. https://pub.njleg.state.nj.us/publications/budget/Scoresheet_FY_2025_Appropriations_Act_(P.L.2024,_c.22).pdf
[xv] Center on Budget and Policy Priorities, Chart Book: The Earned Income Tax Credit and Child Tax Credit, May 24, 2016, https://www.cbpp.org/research/chart-book-the-earned-income-tax-credit-and-child-tax-credit.
[xvi] Peter Chen, New Jersey Policy Perspective, Boost Family Tax Credits to Boost Affordability, Feb. 25, 2025, https://www.njpp.org/publications/blog-category/boost-family-tax-credits-to-boost-affordability/
[xvii] Brittany Holom-Trundy, New Jersey Policy Perspective, Expand Anti-Poverty Programs to Help Families in Crisis, Jan. 22, 2025, https://www.njpp.org/publications/blog-category/expand-anti-poverty-programs-to-help-families-in-crisis/
[xviii] Brittany Holom-Trundy, New Jersey Policy Perspective, Outdated and Ineffective: Why New Jersey Needs to Update Its Top Anti-Poverty Program, May 22, 2024, https://www.njpp.org/publications/report/outdated-and-ineffective-why-new-jersey-needs-to-update-its-top-anti-poverty-program/
[xix] New Jersey Department of Human Services, Cover All Kids, accessed on Feb. 7, 2024, https://nj.gov/coverallkids/
[xx] Alex Ambrose, New Jersey Policy Perspective, Corporate Transit Fee Should Only Go to NJ Transit, Jan. 28, 2025, https://www.njpp.org/publications/blog-category/corporate-transit-fee-should-only-go-to-nj-transit/
[xxi] Alex Ambrose, New Jersey Policy Perspective, Stop the Raids: The Clean Energy Fund Should Fund Clean Energy, Jan. 12, 2023, https://www.njpp.org/publications/report/stop-the-raids-the-clean-energy-fund-should-fund-clean-energy/
[xxii] For more on the challenges facing New Jersey Transit’s reliability, see Larry Higgs, It will take years to fix the problems that led to the summer of hell for N.J. rail commuters, officials say, NJ.com, Nov. 21, 2024, https://www.nj.com/news/2024/11/it-will-take-years-to-fix-the-problems-that-led-to-the-summer-of-hell-for-nj-rail-commuters-officials-say.html
[xxiii] Alex Ambrose, New Jersey Policy Perspective, Stop the Raids: The Clean Energy Fund Should Fund Clean Energy, Jan. 12, 2023, https://www.njpp.org/publications/report/stop-the-raids-the-clean-energy-fund-should-fund-clean-energy/
[xxiv] Marleina Ubel, New Jersey Policy Perspective, End Predatory Prison Communication Fees, Jan. 15, 2025, https://www.njpp.org/publications/blog-category/end-predatory-prison-communication-fees/.
[xxv] Marleina Ubel, New Jersey Policy Perspective, Prison Profiteers: How Private Companies Profit From Prison Phone Calls and Harm New Jersey Residents, Aug. 19, 2024, https://www.njpp.org/publications/report/prison-profiteers-how-private-companies-profit-from-prison-phone-calls-and-harm-new-jersey-residents/#_edn13
