With Governor Phil Murphy's FY26 budget announcement approaching on February 25, discussions in Trenton are increasingly focused on the potential challenges it might present. There is speculation about fiscal cliffs, structural deficits, spending cuts, surplus withdrawals, and tax hikes.
Christopher Emigholz, NJBIA Chief Government Affairs Officer, highlighted that any forthcoming issues have not arisen suddenly. He noted Governor Murphy's achievements in previous budgets, such as consistent full payments to the pension system. However, he also pointed out the significant growth of the state budget by 63% over seven years, attributing it to unsustainable spending patterns.
Recent reports suggest New Jersey could face a $3 billion structural deficit for FY26. While drawing from the state's $6.2 billion surplus seems likely, Emigholz warned of a persisting deficit. He criticized a retroactive $1 billion tax on major job creators intended to fund NJ TRANSIT, suggesting it could hinder economic growth as businesses may reduce local jobs or expand elsewhere.
Governor Murphy has described the upcoming budget as "tough." The administration previously requested departments to cut budgets by 5% and freeze hiring. Emigholz expressed concerns about possible further cuts and their implications for federal funding reductions under cost-cutting measures introduced during the Trump administration.
Tax increases appear less probable this year due to legislative elections; however, there is talk of increasing taxes on online gaming—a sector where New Jersey's tax rate is lower than regional competitors. Emigholz speculated whether this could change given New Jersey’s typically high tax rates compared to other regions.
The $1 billion Corporation Business Tax increase targeting NJ TRANSIT remains controversial. Whether all collected funds will be allocated as intended remains uncertain according to an op-ed by NJBIA President Michele Siekerka.
Meanwhile, Stay NJ continues its path toward providing property tax relief for seniors by early 2026 but faces questions regarding its long-term viability due to projected annual costs of $1.3 billion once fully implemented.
Emigholz mentioned that while some funds have been set aside for Stay NJ's future expenses: "The moment of reckoning really comes in FY27 when that full bill comes into play."
