Budget showdown: Tax hikes or spending cuts?

💰 Facing a $3 billion gap, Gov. Sherrill vows no new taxes—but offers few specifics
⚖️ Rising costs for pensions, Medicaid, and schools could force tough trade-offs
📊 Lawmakers and governor may clash as budget priorities collide in Trenton

Sherrill warns of $3B New Jersey budget deficit, vows no tax hikes

Gov. Mikie Sherrill is due to present her first budget to the legislature on March 10.

On Thursday, she vowed to cut spending, but offered no details other than to say there will be "tough choices" ahead.

Sherrill emphasized that spending reductions—not new revenue—will be the primary tools to deal with a potential $3 billion deficit.

“So to be clear, we’re not going to raise taxes on New Jerseyans,” Sherrill said. “We are going to look for savings because together, we need to fix Trenton’s historic spending problem.”

Her comments set the stage for what could be a contentious budget process in the weeks and months ahead, particularly if she targets spending reductions among programs that are sacred among the current Democratic leadership in the legislature.

Rising costs: pensions, Medicaid, school aid and property tax relief

Sherrill identified several major drivers of state spending that she says are putting pressure on New Jersey’s finances.

Among them are public worker salaries and pension obligations, rising Medicaid costs, K-12 school funding, and property tax relief programs—areas that together account for a significant portion of the state budget and were primary drivers of spending increases under the previous administration.

“These are all priorities, but they are also growing at rates that are unsustainable,” Sherrill said, warning that failing to rein in spending could deepen the state’s structural imbalance.

Each of those categories represents politically sensitive ground. Pension payments are tied to commitments made to public employees, Medicaid serves vulnerable residents, school aid is a cornerstone of education funding, and property tax relief remains one of the most popular programs among voters.

Any effort to slow spending growth in those areas could draw resistance from lawmakers and advocacy groups.

Competing agendas: governor vs. legislature on spending priorities

Sherrill’s call for restraint may put her at odds with fellow Democrats who control the Legislature who were all to happy to join in the record spending spree of the past eight years.

Legislative leaders have consistently prioritized increased funding for education, expanded health care access, and robust property tax relief—initiatives that often require additional spending rather than cuts.

Democratic lawmakers have also backed fully funding the state’s pension obligations and maintaining or expanding social services, arguing that those investments are critical to economic stability and equity.

That alignment on spending priorities could complicate negotiations if Sherrill seeks to scale back growth in those same areas to balance the budget without raising taxes.

GOP says “we warned you,” policy group urges tax increases

Reaction to Sherrill’s comments was swift, with Republicans arguing the governor is acknowledging concerns they have raised for years, while a liberal policy group called for higher taxes to help close the deficit.

State Sen. Declan O’Scanlon (R-Monmouth) said Sherrill’s warning validated Republican criticism of Democratic spending policies.

“Well well well…Republicans, right again!” O’Scanlon said in a statement. “Governor Sherrill agreed with Senate Republicans that Trenton Democrats have been papering over a cratering budget mess, and tax increases aren’t the answer.”

O’Scanlon noted that Republican members of the Senate Budget Committee recently urged the governor to adopt spending restraints and reforms that had been “ignored by Democrats for years,” adding that her March 10 budget address would be a key test of her commitment.

Senate Republican Leader Anthony M. Bucco (R-Morris, Passaic) also struck a cautiously supportive tone, praising Sherrill’s transparency while criticizing past fiscal policies.

“Governor Sherrill deserves credit for her transparency in presenting this budget update,” Bucco said. “Her approach reflects a clear departure from the previous administration, which we consistently described as one marked by missed opportunities and the squandering of billions in federal funding.”

Bucco said Republicans have proposed reforms focused on spending reductions and expressed hope the governor remains committed to avoiding tax increases, calling it a potential “genuine change” from prior policies. He also said Republicans are seeking a role in crafting a bipartisan solution.

Meanwhile, the progressive think tank New Jersey Policy Perspective warned that spending cuts alone could harm vulnerable residents and argued that new revenue should be part of the solution.

“Transparency doesn't close a $3 billion gap,” the group said in a statement. “Fixing a deficit this size through cuts alone would seriously harm low-income residents and working families who depend on Medicaid, school funding, and property tax relief.”

The organization urged Sherrill to consider tax increases on wealthy individuals and corporations, arguing that boosting revenue is necessary to stabilize the state’s long-term finances.

Murphy-era spending surge still shaping fiscal reality

The current budget pressures come after a period of significant spending growth under former Gov. Phil Murphy.

During Murphy’s eight years in office, annual state spending increased by nearly 70%, driven by expanded programs, increased aid to schools and municipalities, and higher pension contributions.

To support that growth, the state enacted billions of dollars in tax and fee increases, including higher levies on corporations and high-income earners, as well as various targeted fees.

Those revenues, combined with federal pandemic aid and a strong economy, helped sustain the spending increases. However, with federal aid largely exhausted and budget surpluses shrinking, the state now faces a more constrained fiscal environment.

Without additional revenue sources, maintaining current spending levels could prove difficult.

“Tough choices” ahead as budget deadline approaches

Sherrill repeatedly warned that difficult decisions lie ahead, but stopped short of detailing where cuts might occur.

“We have to make tough choices,” she said, adding that the current trajectory is not sustainable. “We cannot continue down this path.”

The governor’s challenge will be identifying reductions significant enough to close a multibillion-dollar gap without undercutting key services or alienating legislative allies.

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