Gov. Sherrill’s first budget for Fiscal Year (FY) 2027 largely followed through on the promises made in her original address, focusing on reducing the deficit while preserving family affordability. But a closer look shows that robust revenues and reforms are needed to put the state on more stable fiscal footing. Even bigger changes will be needed in FY 2028 to meet the governor’s promise to eliminate the deficit entirely and make the state more affordable for its residents.
The budget prioritizes investments that help New Jersey families and meet the state’s obligations to its residents, including full pension and school formula funding, expansion of the Child Tax Credit to help hundreds of thousands of families, and increased funding for legal services for New Jerseyans at risk of deportation or detention. Reducing the deficit by reforming the senior property tax program Stay NJ and closing tax loopholes used by large businesses and their owners allowed the state to preserve funding for critical programs such as schools and New Jersey Transit. In particular, paring back Stay NJ showed how strict the budget math is; no matter how popular a program or how powerful its supporters, the reality of the state’s revenue shortfall cannot be escaped.
The current budget does not make future budget math easier. The revenue from some of the reforms is only temporary and may be unpredictable. For example, the temporary suspension of businesses taking net-operating-loss deductions is projected to generate $485 million in FY 2027. But this suspension only lasts four tax years, allowing companies to claim those losses in later years, canceling out the benefit of the suspended years with more losses in later ones. Similarly, the fee on employers with Medicaid-enrolled employees may raise around $150 million in FY 2027, but the Office of Legislative Services only projects $23 million in FY 2028, due to a legal change in July 2027 that exempts new, part-time, and seasonal workers from the fee. Employers may also respond by classifying employees as part-time or by enrolling more employees in employer-based insurance, thus reducing the revenue generated. (More on NJPP’s analysis of the Medicaid fee can be found here.)
On the spending side, many of the reduced expenditures between the governor’s March budget proposal and the final approved June budget came from more than $250 million in reduced Medicaid and public health care spending due to lower enrollment. Although reduced enrollment temporarily cuts state spending, an increase in uninsured residents would shift health care costs into other parts of the system, including more hospital charity care and more severe illness. If these severe coverage losses occur, the state has no current plan to cover these residents.
Gov. Sherrill demonstrated her willingness to take on reforms to balance the state’s books and help families seeking economic security. The final version approved by the legislature reflects these principles and values. Those values will be tested soon: the state faces slow-but-steady growth in the face of rapidly rising health care costs, while high-wealth individuals and corporations report record profits. New Jersey’s next budget will require even more work to ensure that a balanced budget comes from fair taxation of the wealthy, rather than cuts to programs that working-class and middle-class New Jerseyans depend on.
Other Major Budget Priorities
Below is a short summary of NJPP’s budget priorities and their final status in the Appropriations Act. (All figures are based on the FY 2027 Appropriations Act unless otherwise noted.)
NJPP FY27 Budget Priority
Was it included in the budget?
Protect the surplus and close the deficit |
 Partially Included. The state’s annual budget shortfall is now projected at $1.4 billion, down from initial estimates of nearly $3 billion. The final budget closed the gap through increased revenues from corporations and business owners and major reforms to Stay NJ. The state’s cash reserves continue to shrink, down to a projected $6.1 billion.
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| Fully funding pensions and schools |  Yes. The final budget included the governor’s recommended full funding of the pension payment and K-12 school funding formula.
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| Raise revenues to balance the budget | Partially Included.The final FY 2027 budget included the governor’s main proposed revenue raisers:
Although these changes add $750 million to this year’s budget, the long-term outlook is more mixed. The annual cap on net operating losses ends in three years, while the Medicaid fee is front-loaded, with only $23 million expected in FY 2028. The increased revenues help in the short term, but more lasting revenue raisers and corporate loophole closures were not included in this budget. |
| Maintain Stay NJ’s guardrails, specifically the original spending rules that require a healthy budget surplus | Yes. The governor’s proposed reforms to Stay NJ are largely intact, with the program now limited to households with up to $200,000 in income and maximum benefits of $6,500 only available to those with up to $100,000 in income. These changes, which align with prior NJPP recommendations for reform, will reduce projected costs by $450 million. The cost of the program remains high at $742 million, setting up a potential need for more reform in the future.
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| Maintain funding for services for immigrants | Yes. The approved budget increases funding by more than $20 million for legal services and representation for New Jersey residents facing detention and deportation. It also preserves funding levels for programs such as Cover All Kids, which provides health insurance for children regardless of immigration status.
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| Expand and improve tax credits for working families | Yes. The budget included a 25 percent increase in the state’s Child Tax Credit, committing $50 million to assist families with incomes less than $80,000 annually with young children at home. NJPP has called for expanding the Child Tax Credit and Earned Income Tax Credit to improve affordability for working families.
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| Increase benefits in WorkFirst NJ to reduce poverty |  No. The budget did not increase benefit amounts for WorkFirst NJ, which provides cash assistance to low-income households.
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| Expand affordable health insurance options | Partially Included. The budget continued to fund Cover All Kids, spending $169 million on the program to keep pace with enrollment. Medicaid is also setting aside $10.5 million to carry out the new federal work requirements under H.R.1. But the major proposal to address state-funded health insurance focused on a fee on employers with Medicaid-enrolled employees, rather than the expansion or protection of existing health insurance coverage.
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| Keep the Corporate Transit Fee funding transit | Yes. The budget directed Corporate Transit Fee funds only to New Jersey Transit, not to the General Fund or to paying for other programs.
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| Use the Clean Energy Fund only for clean energy projects | No. The budget continued diverting $140 million from the Clean Energy Fund for utility costs and operations of New Jersey Transit, rather than on clean energy projects. The budget also transferred funds meant for long-term infrastructure such as energy efficiency and storage to short-term ratepayer relief.
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| End predatory prison communication fees | No. The budget did not include any funding to reduce or eliminate the cost of prison communication fees, leaving families to bear the $15 million burden of communicating with their incarcerated loved ones.
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All citations refer to the Appropriations Act (A-5327/S-2027) and Scoresheet unless otherwise indicated.
To learn more about policy solutions that NJPP recommends to build a more equitable state, read Blueprint for a Strong and Resilient New Jersey.
