With each passing day until Gov. Phil Murphy’s FY26 budget on Feb. 25 comes more talk from Trenton about how painful it just might be.
Fiscal cliffs. Wide structural deficits. Spending reductions. Surplus withdrawals. Tax increases.
Any and all have been mentioned as possibilities in the governor’s final budget of his two terms.
In previewing what could be delivered in 10 days, NJBIA Chief Government Affairs Officer Christopher Emigholz said whatever happens, none of it will have occurred overnight.
“There have been some good things done by Governor Murphy in previous budgets, most notably multiple years of full payments to our long-underfunded pension system,” Emigholz said. “There have been some good areas of pro-growth spending as well that folks tend to forget about, and we shouldn’t forget about.
“But at the end of the day, we’re talking about a state budget that has grown 63% in seven years. You can talk about pandemic stimulus money, an attempt to stimulate the economy after COVID or even the justifiably important increases in pension funding and school aid. But a 63% increase in the budget is massive and it has largely been based on unsustainable spending year after year.
“Eventually, that’s going to catch up to you.”
By many appearances, that “eventually” is now and next year.
ACCRUAL SUMMER?
This week, NJ.com reported that New Jersey may be facing a more than $3 billion structural deficit for FY26.
A draw from New Jersey’s currently $6.2 billion surplus is all but assured. But Emigholz warned that there will likely be a structural deficit left.
“In FY25, the budget included about $2 billion from surplus and there was still a structural deficit,” Emigholz said. “The way you typically get out of structural deficits is to grow revenues organically.
“Yet a retroactive $1 billion tax was levied on New Jersey’s largest job creators to fund NJ TRANSIT. That tax will hurt economic growth in the state as we see those impacted businesses cut jobs here or grow elsewhere.”
Murphy said as recently as Thursday that it will be a “tough budget” and late last year the administration asked all its departments for a 5% budget reduction and a freeze on all hires.
Emigholz said other cuts may be likely but could be determined by where New Jersey loses federal funding amid a cost-cutting overhaul under the Trump administration.
“If you have a budget with fair and broad reductions, where must-have programs can still function and no broad tax increases are included, that could be a positive thing,” Emigholz said.
“But if there are further tax increases for an already over-taxed state plus disproportionate cuts to funding in pro-growth areas like innovation, manufacturing, workforce development and higher education, then you’re unfortunately taking steps away from organically growing revenues.”
WHAT ABOUT TAX INCREASES?
It would seem less likely that tax increases would be on the menu this year given it’s an election year for the Legislature.
There have been, however, whispers of a tax increase on online gaming. This is a rare area where New Jersey’s tax rate (14%) is considerably less than regional competitors.
“Regional competitiveness is typically a notorious term for New Jersey because we’re usually the highest or one of the highest rates in the region, or the nation, when it comes to any number of taxes,” Emigholz said.
“Because of this, the cynic in me can’t help but wonder if the online gaming tax rate won’t increase. That is, can we sustain a tax rate where we’re not one of the highest?”
The contentious $1 billion Corporation Business Tax increase levied on New Jersey’s largest job creators last year will be part of the FY26 budget, but whether all of those funds go directly toward its intended target – NJ TRANSIT – is not a sure thing, as described in an op-ed by NJBIA President and CEO Michele Siekerka this week.
“The promise was a full-funding source for NJ TRANSIT,” Emigholz said. “Using that revenue stream for anything other than NJ TRANSIT would be another reason for concern in our business community.”
WILL STAY NJ STAY?
By many accounts, Stay NJ is still on track to provide seniors property tax relief in early 2026.
But once fully implemented, the program’s reimbursements are expected to cost $1.3 billion a year – and its long-term sustainability has definitely come into question.
“The state has already put away some money for Stay NJ,” Emigholz stated. “The moment of reckoning really comes in FY27, when that full bill comes into play.”
