Governor Murphy Delivers Final Budget Address Amid Federal Funding Uncertainty

Governor Murphy Delivers Final Budget Address Amid Federal Funding Uncertainty

On Tuesday afternoon, Governor Phil Murphy delivered his final state budget address at the Statehouse in Trenton, unveiling a record $58.1 billion FY2026 budget proposal. The plan aims to preserve property-tax relief, sustain full public worker pension payments, and generate $1.2 billion through new fees and taxes including those on alcohol, cigarettes, luxury homes, and internet gambling in New Jersey.

Murphy’s budget plan for the fiscal year beginning July 1 projects $1.2 billion more in spending than anticipated revenue.

“Though the budget I present to you today is the final budget of our administration, it is one that reflects our ongoing—and unrelenting—commitment to building a state that is stronger, fairer, and more prepared for the future," Murphy stated.

The proposal includes a $6.3 billion surplus, ensuring the next governor inherits a financial cushion more than 15 times larger than the one Murphy received upon taking office in 2018. However, looming Medicaid cuts proposed by Congressional Republicans threaten this stability. Additional uncertainty arises from potential spending reductions under Republican President Donald Trump’s administration.

“I think it’s safe to say that we are facing more uncertainty at the federal level than at any other point in modern history,” Murphy said. “And this uncertainty has a direct impact on all of us, and most importantly, the people of New Jersey.”

Murphy and the Democratic-controlled state Legislature will now negotiate a final budget ahead of the June 30 deadline, with public hearings scheduled in the coming months.

Highlights of Governor Murphy’s Proposed FY2026 Budget

$1.2 Billion in New Fees and Taxes

While avoiding new sales or income tax hikes, the budget expands taxation to various services and increases existing fees:

• Luxury Home Sales: Homes sold for $1 million to $2 million would see an assessment increase from 1% to 2%, while those over $2 million would rise to 3%, generating $317 million.
• Internet Gaming and Sports Betting: Tax rates would increase from 13% and 15% to 25%, yielding $402.4 million.
• Cigarettes, Alcohol, and Vaping: A 30-cent tax hike on vaping liquid would raise $10 million; a 10% increase in alcohol taxes would generate $18.5 million; and cigarette taxes would rise to $3.00 per pack, bringing in another $10 million.
• Newly Taxed Services: The state expects $277 million from new taxes on participatory activities (ex. go-kart racing, bowling), interior design services, horse training, massage therapy, vehicle trade-ins, comped meals, tickets, and hotel rooms. Sales tax exemptions on boats would also be removed and a new tax is proposed on the purchase of certain unmanned aircraft systems (drones). The budget proposal includes increases to firearm fees and new excise taxes on both firearms and ammunition, which is projected to generate $7.8 million of additional General Fund revenue. However, Murphy proposes eliminating sales tax on baby products and sunscreen.
• Warehouse Truck Traffic Fee: A $2 excise fee on warehouse truck traffic is expected to raise $20 million while mitigating the impact of new warehouse developments.

Property-Tax Relief

The budget allocates $4.3 billion to property-tax relief programs, maintaining funding for the ANCHOR program, the Property Tax Deduction Act, and the Senior Tax Freeze. Additionally, $600 million is earmarked for Stay NJ, benefiting approximately 432,000 seniors starting in January.

Pension Contributions

For the fifth consecutive year, New Jersey will contribute $7.2 billion to the state pension fund, bringing the administration’s total pension contributions to $47 billion—six times more than the combined contributions of previous governors.

School Aid

Murphy proposes an additional $436.8 million in public school aid, the largest allocation under the School Funding Reform Act, bringing total education spending to $12.1 billion for 1.4 million students. An additional $10 million will expand pre-kindergarten programs.

NJ Transit

Thanks to increased taxation on the state’s wealthiest corporations, NJ Transit will receive $815 million in funding. Murphy highlighted federal and state investments that have added 1,000 buses over the past seven years and announced plans to replace all outdated buses and rail cars in the agency’s fleet.

“With our proposed budget, we are going to move forward in fully modernizing NJ Transit,” Murphy said. “Getting this done will make NJ Transit more reliable and more accessible for every New Jerseyan.”

Republican Response

Republican lawmakers criticized Murphy’s budget for increasing spending without addressing long-term structural deficits.

“The record-high $58.1 billion budget proposal perpetuates the state’s structural deficit and leaves a surplus that would take the state just 39 days to burn through,” said Senate Republican Leader Anthony Bucco (R-Morris).

Assembly Republican Budget Officer Nancy Munoz (R-Union) echoed concerns, stating, “They’re deflecting blame on the federal government (for cuts) that haven’t even happened yet, and meanwhile, they’re spending money we don’t have and relying on revenues that won’t materialize.”