A Budget With Big Numbers
New Jersey's legislature just passed a $58.78 billion budget for 2026, a figure that dwarfs the $34.7 billion plan from 2018. Governor Phil Murphy calls it a triumph of fiscal discipline, pointing to a $6.7 billion surplus and record property tax relief. Full pension payments and school funding also hit historic highs. Beyond the headlines, a critical question remains about whether the state can sustain this spending spree without squeezing taxpayers further.
The budget pours over 75 percent of its funds back into communities through grants, school aid, and social services. Homeowners and renters get $4.3 billion in tax relief, including $2.4 billion for the ANCHOR program. Seniors benefit from the $600 million Stay NJ initiative. New revenue streams, including a 2.5 percent Corporate Transit Fee and higher taxes on cigarettes and sports betting, prompt concerns about long-term costs.
Surplus or Mirage?
A $6.7 billion surplus sounds impressive, especially compared to the $409 million left in 2018. Credit rating agencies have rewarded New Jersey with outlook upgrades, citing better liquidity and pension discipline. While impressive, the surplus relies heavily on one-time federal aid and temporary taxes. The Office of Legislative Services warns of a $1.5 billion structural deficit by 2028, when the corporate fee is set to expire.
Spending has surged 69 percent since 2018, far outpacing the 30 percent rise in inflation. This growth fuels vital services but risks overcommitment. If revenues dip, as they did post-Great Recession, the state could face tough choices: cut programs or hike taxes again. A statutory cap tying spending to inflation and population growth could prevent such a bind, ensuring reserves truly buffer future shocks.
Tax Relief That Doesn't Solve the Root
New Jersey's property taxes, averaging $9,800 per homeowner, remain the nation's highest. The budget's $4.3 billion in relief, including ANCHOR checks and Senior Freeze, offers real help. Stay NJ promises to cut senior tax bills by up to 50 percent. These programs ease the sting. They also do not address the underlying reasons for climbing levies, including local government costs and school district inefficiencies.
Past rebate programs show temporary relief fades within three years without levy caps. A bolder fix would tie aid to municipal consolidation or shared services, cutting overhead. Redirecting some ANCHOR funds to stabilize local budgets, contingent on spending limits, could deliver lasting relief and avoid recycling state taxes to offset local ones.
Corporate Fees and Transit Troubles
The $788 million Corporate Transit Fee targets big businesses to prop up NJ TRANSIT, which faces a $1 billion deficit by 2027. Modernizing the fleet is overdue. The fee also fails to address deeper issues, including labor costs and operational waste. Other states have tackled transit deficits through privatization or performance-based contracts, options New Jersey has barely explored.
Businesses already face a tough climate, with high taxes driving some to relocate. The state lost high-earning households in recent years, shrinking the tax base. Scaling back the fee, paired with fare hikes or asset concessions, could balance transit needs and avoid punishing job creators. A transparent plan to cut NJ TRANSIT's losses would build trust.
Pensions: Progress With a Catch
Five straight years of full pension payments, totaling $47 billion under Murphy, mark a clear win. The $7.2 billion contribution in 2026 keeps the system on track to hit a 70 percent funded ratio by 2032, assuming steady returns. This reverses decades of skipped payments that left the fund below 50 percent in 2016. Bondholders and retirees breathe easier, and the system's 60 percent funded status remains below national averages.
Future contributions will keep crowding out other priorities unless reforms kick in. Shifting new hires to hybrid or defined-contribution plans, as other states have done, could ease the burden and avoid touching current workers' benefits. A bipartisan commission to study this shift would signal serious intent to secure pensions long-term.
A Path to Smarter Spending
New Jersey's budget showcases ambition: strong schools, better transit, and real tax relief. This ambition also needs guardrails. If structural reforms are not implemented, the state risks repeating past mistakes, where spending outran revenue, and taxpayers footed the bill. Capping expenditure growth, rethinking corporate taxes, and tackling transit inefficiencies offer a way to keep services robust and avoid breaking the bank.
Local governments and schools also need to take action. Consolidating districts and incentivizing shared services can curb property tax hikes more than rebates ever will. NJ TRANSIT needs a clear turnaround plan, alongside corporate cash. These steps prioritize families and businesses, ensuring the state thrives and avoids leaning on volatile taxes or federal bailouts.
The 2026 budget is a milestone, and the state's fiscal journey continues. New Jersey can build on its fiscal gains by choosing discipline over excess. A leaner, smarter approach will deliver for homeowners, workers, and retirees, proving that prosperity comes from disciplined spending.