Listen to this articleThe basics:
- Gov.-elect Sherrill will inherit a $58.8 billion FY2026 budget with a structural deficit
- Federal Medicaid and SNAP cuts could further strain New Jersey finances
- Sherrill says she does not anticipate new taxes in her first budget
- Lawmakers, business groups and experts warn tough fiscal choices loom
As Gov.-elect Mikie Sherrill prepares to take the oath of office Jan. 20, her administration is already taking shape with a robust transition team announced and key appointments recently made.
While much of the attention focuses on those moves ahead of the inauguration – along with the ongoing lame duck session in Trenton – it also comes as a very consequential and challenging task awaits the new governor: crafting her first state budget.
Sherrill will inherit a $58.8 billion fiscal year 2026 budget, the final signed into law by fellow Democrat Gov. Phil Murphy. The spending plan included record funding for K-12 schools, a full pension payment, expanded property tax relief programs and closed with a $6.7 billion surplus, as well as structural deficit of $1.5 billion (with critics saying that number is higher, up to $4 billion).
The final budget also included new fees and taxes on a number of items, such as nicotine/vaping products, sports betting/internet gaming, and the realty transfer tax increase on homes and commercial properties, which garnered opposition.
There was also criticism about the process coming down to the wire once again, last-minute add-on pork items, and a topline that is significantly higher than when Murphy took office. The final budget under Republican Gov. Chris Christie came in at $36 billion.
And, there is the added challenge of looming cuts at the federal level for Medicaid and SNAP, stemming from the One Big Beautiful Bill Act.
Sneak peek
With her inauguration weeks away, the focus in Trenton is already shifting toward what comes next.
Sherrill’s first budget proposal will serve as an early test of her leadership style and policy priorities, setting the tone for negotiations with lawmakers and defining how her administration plans to balance fiscal restraint with growing demands for public investment while addressing affordability — a key issue she hammered home in her decisive election win.
“We’ve been talking through the last budget, what we’re seeing coming forward in the budget, and how the federal government’s withdraw of funding might be impacting our budget,” Sherrill told NJBIZ at a press gaggle following a Dec. 19 policy summit held by her transition team in East Brunswick. “So, we’ve had a lot of conversations. And then, we’ve also had a lot of discussion with these Task Force groups about what they’d like to see; how funding and contracts are working – or aren’t work; where we might find some cost savings; independent auditors, etc.
“And where we really are going to need to find support, such as for mental health for kids.”
Talking taxes
Sherrill was also asked at that gaggle about whether she planned to have any new taxes in her first budget.
“I don’t intend to,” she said. “What I’m looking to do right now is drive down costs for New Jerseyans. What I’m focused on is getting programs in place; is spending the state budget money very wisely. Because we are going to be in a very constrictive environment from both the federal government, from the end of the COVID funding. So, we are going to have to drive in change – and make sure that all of the programs we’re running are working for the people of New Jersey.
“Because as I’m working to drive down costs, it’s going to be harder and harder as we see things coming from the federal government that are working to drive up costs. That’s the kind of constrained environment we’re in.”
She was then asked if that was a promise of no new taxes then.
“I don’t anticipate in this budget we will be working towards that,” said Sherrill. “We’ll be working towards lowering costs for people.”
Reading the room
NJBIZ recently connected with the respective legislative chambers of each party, political experts, business leaders, budget/restructuring experts, and others for their perspectives, hopes, expectations and insights about Sherrill’s first budget.
“Over the past few years, the state budget has expanded dramatically, funded by a combination of increased post-COVID federal aid and increased taxes,” Dan Cassino, professor of government and politics at Fairleigh Dickinson University, and executive director of the FDU Poll, told NJBIZ. “That expansion meant that Murphy was able to get some desired spending increases – especially for pensions – without too many cuts elsewhere.
“I don’t see how Sherril can keep that going.”
As gov.-elect, Sherrill’s navigating a difficult fiscal reality and will undoubtedly have to make some tough decisions.
— Alyssa Maurice, William J. Hughes Center for Public Policy at Stockton University
“As gov.-elect, Sherrill’s navigating a difficult fiscal reality and will undoubtedly have to make some tough decisions,” Alyssa Maurice, assistant director and head of research & polling for the William J. Hughes Center for Public Policy at Stockton University, told NJBIZ. “She’s facing New Jersey’s significant structural deficit, funding cuts coming down from the federal administration, and mounting pressure from residents who are looking for affordability relief as costs continue to rise.”
Cassino continued, “If nothing else, the reduced federal aid would mean some tough choices. Pair that with a slowing economy, and keeping current levels of spending is going to require tax increases or budget cuts, or probably both. It won’t be pretty.”
“High taxes are a perennial issue for residents but they’re also deeply protective of the schools, services, and programs that make New Jersey a great place to live,” said Maurice. “So, it’s a balancing act for every governor but it’ll be especially challenging for Sherrill with the financial constraints she’s facing. As the surplus funds shrink, the deficit’s only going to expand in the coming years without increased revenue and spending cuts.”
Setting priorities
Cassino says he’s tracking a couple of big areas where he believes we could see some movement.
“First, are we going to keep fully funding the pension fund? It’s definitely something we should do, but it’s largely invisible in the near term,” Cassino explained. “Second, state employee health benefitswere just cut; are we going to see more savings there? It’s a way to cut spending that might be more palatable than service cuts, and other governors have gone to that well.
“Third, tax rebates for the elderly. Sending people checks is less urgent after an election than before,” Cassino continued. “Fourth, whence the money for that promised energy price freeze? Fifth, consolidation. We could save a lot of money by getting some municipalities to merge, and every governor for 20 years has been trying to make it happen and failing.
“Will Sherrill be next?”
His final item was health care.
“There’s going to be a lot of pressure on Sherrill to replace at least some of the money taken away by federal cuts to hospitals, and some people with close ties to hospitals are influential,” said Cassino.
“The budget will also provide the clearest window into Sherrill’s priorities as governor,” said Maurice. “When leaders make choices on where to spend and where to cut, they reveal their priorities and values in a way that no slogan or speech on the campaign trail can.
“One area where the gov.-elect has been especially clear is in her commitments around transparency and accountability in the state budget.
“She’s emphasized the need for plain language budgets, clearer reporting, and more opportunities for the public to track where tax dollars are going and the impact of those dollars, so it’ll be interesting to see how that’s implemented in practice.”
A ‘good sign’
As the transition takes shape, preliminary discussions are also taking place between Sherrill, her team, and legislative leaders about the budget and other key priority areas.
“We have had very positive discussions with Gov.-elect Sherrill’s Transition Team and look forward to have a constructive working relationship with the new Sherrill administration once she takes office in January,” Richard McGrath, spokesperson for Senate Democrats, told NJBIZ, continuing, “We share the same goal of addressing the needs and priorities of the people of New Jersey and moving the state forward during challenging times.
“We believe there are opportunities for progress that we can achieve in partnership with Gov. Sherrill and the Assembly.”
The Assembly Democrats echoed that sentiment. A spokesperson telling NJBIZ that talks with Gov.-elect Sherrill and her team have been productive.
On the other side of the aisle, Senate Republican Budget Officer Declan O’Scanlon, R-13th District, said he has had some discussions with members of the transition who sought information about the budget and where things stand, which he described as a “good sign.”
“If they really want to – and they should – have a good handle on the true status of our fiscal situation, they should be aspiring to assess that,” O’Scanlon told NJBIZ. “It’s bleak. Despite what the outgoing administration is saying – we’ve got a $4 billion structural deficit. Democrats, who denied it all during the campaign, have admitted that to my face – that we realize it’s $4 billion.
“This administration needs to accept that ASAP – and it’s going to be brutal to deal with.”
School funding
O’Scanlon says the state missed a golden, once-in-a-life-time opportunity over the last eight years — which doesn’t exist anymore.
“The foolish, full-funding of an unworkable, unsustainable school funding formula that could have been easily reformed, and saved us a billion dollars – maybe more,” O’Scanlon continued. “That is a wasted, missed opportunity. Now that it’s fully funded, this administration really is going to have to take a look at that funding.
“We have some school districts that have so dramatically increased their funding over the past seven years – that they’re essentially setting the money on fire. No idea how to spend it. While we have other districts that are turning out the lights, on the verge of bankruptcy.”
O’Scanlon says the Sherrill administration is going to be in a tough spot.
[I]n today’s politics, people too frequently root for the other side’s failure. That isn’t a pro-New Jersey position. We need to be rooting for this governor’s success.
— Declan O’Scanlon, Senate Republican budget officer
“I am hopeful that we can work together,” said O’Scanlon. “Look, in today’s politics, people too frequently root for the other side’s failure. That isn’t a pro-New Jersey position. We need to be rooting for this governor’s success.
“Because this governor’s success is New Jersey’s success – just as we all should be rooting for President [Donald] Trump’s success. Because his success is the country’s success.”
Jersey first
He said that doesn’t mean that everyone has to agree on every policy.
“But we have to do all we can to help and provide for the success of this incoming administration. Because to do otherwise is to root against New Jersey,” said O’Scanlon. “And that shouldn’t be our position. We need to, in a classy way, do our best to work together. And I do have to shout out the incoming governor. The gov-elect has been classy so far.
“While I may disagree with some choices with the transition teams, etc., I know she’s reached out to individual people to participate in the transition. They were surprised and pleased on both sides of the aisle. It’s a good thing – so we all need to remain optimistic and very interested in working together for the benefit of New Jersey.”
When asked of items/ideas he would recommend to the Sherrill administration for this budget, he again pointed to reforming the school funding formula, prospective pension and health benefits reforms, and addressing budget pork.
Checks and balances
“Under Democrat control, New Jersey has spent well beyond our means and delivered a budget filled with billions in last-minute legislative add-ons,” incoming Assembly Republican Budget Officer Brian Rumpf, R-9th District, told NJBIZ. “Murphy’s most recent $58.8 billion spending plan included a structural deficit of $1.5 billion and expenditures are only projected to go up if nothing changes in the Sherrill administration. The gov.-elect is inheriting a dwindling surplus and a legislative body controlled by more Democrats who have never shown any restraint when it comes to spending other people’s money.
“As the incoming Assembly Republican Budget Officer, I plan to work with my colleagues to push the Sherrill administration and legislative leaders for greater transparency in the budget process; a spending plan that doesn’t outpace revenues; and meaningful cuts that maintain vital public services and root out government waste,” Rumpf continued. “Assembly Republicans remain steadfast in our commitment to cutting taxes and lowering costs for the people of New Jersey.
“We are ready to hold Sherrill accountable for her affordability promises on the campaign trail by advancing legislation that will put kitchen table issues at the decision-making table in Trenton.”
Getting down to business
New Jersey Business & Industry Association (NJBIA) President and CEO Michele Siekerka spoke to NJBIZ about her hopes for Sherrill’s first budget. Last month, the transition team named her to the Interdisciplinary Advisory Task Force.
Siekerka shared three main points with NJBIZ.
“It’s really easy. First is process. We want a more timely and more transparent process,” Siekerka told NJBIZ. “Because a good process yields a fair result. As you know, they do things up to the 11th hour – oftentimes, they are voting on stuff they haven’t even had the chance to read. People are throwing in stuff last minute.
“We would love a more timely and transparent process,” Siekerka continued. “Second is no new taxes. Big surprise there. And we know we’re not going to get it now, but obviously we would like reform and better consideration on business taxes in the future. But we know that won’t happen with the crunch we have here. But don’t lay any more taxes on the business community.
“Third is no new burdens on business. The budget is dollars – but there’s policy around dollars. And sometimes, how you allocate dollars could mean another burden on business. We don’t want anything that would create new burdens on business. So, good process, no new taxes, no new burdens on business.”
Game plan
NJBIZ also spoke with Perry Mandarino, co-head of investment banking, head of restructuring and senior managing director at B. Riley Securities, an expert on budget and restructuring.
Mandarino offered insights about the fiscal situation Sherrill is walking into – and shared his thoughts about how to best proceed.
“The gov.-elect is certainly stepping into a windmill – or even worse than that, into a hurricane, coming off the post-COVID years and all that,” Mandarino told NJBIZ. “The good thing about the gov.-elect is that she’s super smart. She went to the Naval Academy, Georgetown Law, worked at Kirkland and Ellis. It’s always good to have a smart person in the room.
It’s always good to have a smart person in the room.
— Perry Mandarino, B. Riley Securities
“Because when you think about it, New Jersey is like running a $60 billion company. That’s huge. And people sometimes don’t realize that a state, despite how it’s broken up between municipalities and counties and everything else: you’re still, as governor, the chief executive officer of the state. Luckily, the gov-elect has the intellectual capacity to deal with that.”
Mandarino said that when you walk into a financial situation such as this, there are a few things that you need to do: increase revenue and/or decrease costs. He stressed, though, that simply raising taxes is not the answer for raising revenue, because it will drive people and businesses out of the state.
Piece by piece
“Higher taxes doesn’t really do it,” he explained. “So, from a revenue standpoint … how do you make the state more attractive to business? Because when businesses come in, people come in, and that doesn’t mean you forget about all of the environmental stuff and you take a bulldozer to every piece of forest. That doesn’t mean all that. But it means making the state attractive to business.”
He said that you have to look at the pluses and minuses.
More leadership changes
NJBIZ spoke with outgoing NJEDA CEO Tim Sullivan about his eight years leading the agency, including accomplishments, lessons learned and what it meant to work under the Murphys. Read our interview here.
“And decreasing costs doesn’t mean that you reduce services. It doesn’t mean you lay off people. But it means you do things more efficiently. You do things better,” Mandarino explained. He pointed to the mansion tax as something that may look on paper as a particular source of revenue, but may not play out that way in actuality. “So, you have to make it attractive for people to come in – and you need to decide what makes sense.
“My view is the cost side of the budget and the revenue side has to be looked at a line-item by line-item review. Because that’s what a restructuring professional like me does. You go in and you look at everything on an incredibly granular level to understand what’s the benefit.”
Mandarino believes that the gov.-elect will rely on good, smart people as any good executive does.
“A good executive never thinks they could do everything on their own. A good executive relies on smart people,” he said.
“You can’t expect miracles in a day. And I think it’s a matter of patience,” said Mandarino. “I think what any administration needs to do is just be communicative and transparent – saying we know $58 billion is out of control, and here’s what we’re going to do. Here’s our timeline. And then, let’s get to it.”
