Gov. Murphy leaves Sherrill billions in budget ‘time bombs,’ report warns

🚨 NJ Policy Perspective warns Mikie Sherrill inherits a budget hiding billions in future costs.

🚨 Stay NJ, school aid, and health benefits are driving sharp spending increases.

🚨 A projected $1.5B revenue drop and expiring pandemic aid threaten state finances.

Gov. Phil Murphy is leaving behind a state budget filled with "time bombs" that Mikie Sherrill will have to defuse within her first six months as governor, according to a new report.

Trenton lawmakers have long tried to cover up budget weakness with gimmicks and by raiding the rainy day fund, said Senior Policy Analyst Peter Chen, who wrote the New Jersey Policy Perspective report. Those past mistakes have left New Jersey with higher bills without a long-term solution.

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"The governor-elect is inheriting a budget that looks healthy on the surface, but underneath there are these time bombs that are ticking with billions of dollars in costs that are going to require difficult decisions to try to defuse," Chen said.

Problems exist on both sides of the ledger for fiscal year 2027, the report says. New Jersey 101.5 has reached out to Murphy's office for comment.

Costs surge as state absorbs full price tag

The costs of the most important and popular state programs will balloon over the next fiscal year, according to Chen. That'll likely drive up the current $58.8 billion budget. The Stay NJ program for seniors, school funding, and state health benefits are the biggest culprits.

Starting this year, Stay NJ will offer property tax relief to seniors who have incomes below $500,000. The impact on the next budget will be that the state must bear the full $1.2 billion cost of the program, which is a $900 million increase from the current fiscal year.

READ MORE: NJ police misconduct scandal as officers collected full pensions

Skyrocketing health benefit premiums for state workers have been a thorn in New Jersey's budget for years. Health benefits already cost New Jersey $2 billion, thanks in part to a $180 million increase in fiscal year 2026.

Premiums recently soared by 59% in only three years. In the next fiscal year, actuaries are recommending rates that could result in another 20% increase.

Other costs will come due later in Sherrill's term, including tax credits that cost the state $14 billion total. On Monday, New Jersey lawmakers approved another $300 million tax break for a renovation of the Prudential Center.

"A lot of those costs don't come due on this budget, but they will come due eventually. That's going to cast a shadow over the next few years of budgets as those companies start claiming those tax credits and hurting revenues in future years," Chen said.

New Jersey can't raise enough tax revenue

Tax revenues are expected to fall by $1.5 billion in 2026, the report said.

Another major loss for the state budget is the end of pandemic-era funding for several programs. Child care and infrastructure projects could lose millions, so lawmakers will need to either raise taxes or cut from other programs.

As an example, Chen points to the Corporate Transit Fee. It was approved by Murphy in 2024 to support NJ Transit with $1 billion after the agency lost pandemic-era funding. The 2.5% tax applies only to businesses with profits over $10 million.

According to Chen, the most effective solutions could be similar tax increases that target the ultra-wealthy.

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