More Taxes, Big Spending: 5 Takeaways From Murphy’s Final Budget

NEW JERSEY — Amid concerns about a growing deficit and a loss of federal aid under President Trump's administration, Gov. Phil Murphy delivered his final budget proposal in front of a joint session of the state Legislature on Tuesday.

Murphy said the record $58.1 billion budget reflects his administration's "ongoing and unrelenting commitment to building a New Jersey that is stronger, fairer, and more prepared for the future."

Here are five takeaways from Murphy's address, where he outlined spending priorities for Fiscal Year 2026:

Property tax relief and affordability

The budget includes nearly $4.3 billion for the ANCHOR, Senior Freeze, and Stay NJ property tax relief programs as well as tax credits for working and middle-class families, Murphy said.

Funding for ANCHOR, which replaced the Homestead Benefit, will make up $2.4 billion as the popular program enters its fourth year. More than two million homeowners and renters are expected to get a benefit in 2026, Murphy said.

Stay NJ is set to go into effect next year, and the budget includes $600 million that will go towards property tax relief for senior citizens.

Also, the budget keeps recent expansions of the Earned Income Tax Credit, the Child and Dependent Care Tax Credit, and the Child Tax Credit. A new sales tax exemption for baby items, including cribs and strollers, is also included.

More than $100 million would be earmarked to support Cover All Kids, which provides free health insurance to tens of thousands of children.

"Today, there are far too many New Jerseyans who are unable to save any money at the end of the month, which prevents them from investing in their family’s future.," Murphy said.

The budget also includes a full pension payment for public workers, with the allocation up to $7.2 billion.

K-12 school funding

Last year's budget fully funded the state's K-12 school funding formula, and an additional $386 million is included in this year's proposal. The $12.1 billion proposed this year would be the largest payment to date, and has increased by $3.9 billion since FY2018.

Murphy also promised districts that their state aid would decrease only by 3 percent or less from last year's amount, in certain categories.

"Every additional dollar the state spends on public education is a dollar our families get to save in property taxes," the governor said.

The budget also includes legislation requiring every school district to provide full-day kindergarten, and another $1.27 billion for Preschool Education Aid.

And, keeping cell phones out of K-12 schools was also part of the governor's address — as he said the administration would give several million dollars to a group of districts making the switch to phone-free schools.

Public transit

Under the proposal, NJ Transit will get $815 million in funding from the Corporate Transit Fee enacted last year — avoiding major service cuts, the governor's office said.

The budget also includes more than $1.2 billion for investments in state and local highway and bridge projects, and another $767 million for NJT capital projects. Murphy said that funding would begin replacing outdated buses and rail cars, after more than 1,000 new buses have been added in the last seven years.

"This funding supports everything from building new bridges — like the Portal North Bridge, which will be a game-changer for tens of thousands of commuters — to rebuilding train stations and modernizing our fleet of rail cars and buses," Murphy said.

Tax policy changes

The governor is proposing a range of tax policy changes to bring revenues more in line with expenses. This includes higher taxes on cigarettes, tobacco and vape products, online gambling, and alcoholic beverages, along with the highest tier of realty transfer fees.

Beginning in 2026, the administration is proposing an extra 30-cent tax on cigarettes (up to $3 per pack), a 10 percent increase in Alcoholic Beverage Tax rates, and increasing tax rates for Internet gaming and online gambling up to 25 percent — from 15 percent and 13 percent, respectively.

Increases to firearm fees, and new excise taxes for firearms and ammunition, are also included. Warehouses around the state could also face a $2 excise fee for truck traffic.

Michele Siekerka, president and CEO of the New Jersey Business and Industry Association, said the group questions the move "to increase any taxes whatsoever, even if they’re so-called vice taxes on internet gambling, alcohol, cigarettes and cannabis products."

Siekerka also said that the truck excise tax "will burden the vital manufacturing and logistics industries and result in higher prices for businesses and consumers."

Preparing for uncertainty

Lawmakers and the governor must negotiate the final 2026 budget by the start of the new fiscal year on July 1, and there will be plenty of discussion on final details as officials seek to balance the plan.

The governor also acknowledged the uncertainty hanging over the state, with possible federal cuts coming.

This year's budget has a projected $6.3 billion surplus, he said, which will "help guard us against unforeseen challenges" coming out of Washington.

"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," he said on Tuesday, warning that this could upend the budget cycle and require a "break the glass" strategy.

"What that looks like, we cannot yet say," Murphy said. "But we must acknowledge and adapt to this new reality."

Republican lawmakers and state policy analysts have warned that New Jersey is headed for a "fiscal cliff" as annual budgets have swelled, and tax revenue has slowed.

The budget address came amid news that the state is facing a $3.7 billion budget hole, though the actual deficit will be closer to $1.2 billion. Murphy said this year's budget incorporated nearly $2 billion in reductions, including scaling back some programs.

Five Republican state legislators have threatened the governor with a lawsuit over the budget, claiming that Democrats have improperly used income tax funds for "pork projects" in past budgets without following a spending formula.

Murphy also warned state departments to prepare for cuts back in November, saying in an interview that he wanted to "pull our belt in, trim our sails, and make sure that we're no longer spending more than we're taking in."

State spending has increased by more than 63 percent since Murphy took office in 2018, with more money allocated to the public worker pension system, the state's school funding formula, and the ANCHOR property tax relief program.

This will also be an important election year in the Garden State, with the governor's seat and state Assembly races this November.