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The basics:

• Sherrill warns NJ could face $3B structural deficit if costs aren’t controlled
• Projected $7.2B surplus could be depleted by FY2027; deficit may reach $750M by FY2028
• Governor pledges no new taxes, launches a public budget tracking portal
• Key drivers include rising costs in Medicaid, pensions, schools, end of federal COVID funds

Gov. Mikie Sherrill warned that New Jersey faces a serious structural deficit of roughly $3 billion. The Feb. 26 notice comes as she prepares to unveil her first state budget March 10.

New Jersey has a projected a $7.2 billion surplus at the end of the current 2026 fiscal year. Despite that, state officials say those funds could be fully depleted within two years. If structural issues are not addressed the deficit could swing to a $750 million by FY2028.

The administration cited rising costs in Medicaid, school funding, pensions, public worker benefits and property tax relief, along with the end of federal COVID relief funds and potential federal funding cuts.

Gov. Phil Murphy’s final plan, the current FY26 budget, came in at $58.7 billion. The total marks a major topline jump from the $35.5 billion final spending plan his predecessor Gov. Chris Christie enacted for FY18.

Sherrill pledged not to raise taxes, instead directing departments to identify savings. She warned that failure to act could trigger credit downgrades, school funding cuts and other painful consequences under the state’s balanced budget requirement.

The governor noted she has spoken to thousands of business leaders and owners, community leaders, parents, teachers, union members and other stakeholders, as well as every member of the Legislature, to hear what’s on their minds heading into the FY27 budget.

Looking for savings

“We’re here now because I want everyone to have a clear picture of our state’s finances before I release my plan for the next fiscal year in less than two weeks,” said Sherrill. “Bottom line, we’re facing a serious structural deficit.”

The governor promised a different kind of leadership. She said she would not engage in one-offs or temporary fixes, nor kick the can down the road.

“Since our constitution requires a balanced budget, that would trigger far worse outcomes, including cuts to everything form school funding to pensions,” said Sherrill. “It could mean credit downgrades and tax hikes causing real pain to New Jerseyans. I won’t let that happen. I refuse to put off for tomorrow what we have to fix today.”

Let’s be clear, we’re not going to raise taxes on New Jerseyans. We are going to look for savings. Because together, we need to fix Trenton’s historic spending problem.
– Gov. Mikie Sherrill

She pointed to the cuts from the Trump administration as well as the end of the “COVID relief party.”

“Washington isn’t coming to save us. Trump is only making things worse,” said Sherrill. “We have to stand up on our own two feet and make some tough choices. But that’s fine. I’ve been doing hard things for most of my life – and that’s what I was elected to do.

“Let’s be clear, we’re not going to raise taxes on New Jerseyans. We are going to look for savings. Because together, we need to fix Trenton’s historic spending problem. And I’m going to stay laser focused on investing in three things that voters sent me here to do – to lower costs for working families, to protect our kids, and to make our government more transparent and accountable.

“And transparency is a big part of why we’re here today.”

Watch the presentation here:

Pulling back the curtain

Sherrill emphasized that transparency, announcing the launch of a public budget tracking tool coming in April. The development comes as part of a broader “New Jersey report card” allowing residents to track state spending online.

State Treasurer Aaron Binder detailed long-term cost drivers, including a more than $7 billion annual pension payment – far higher than the just over $1 billion it would be, had past administrations made full contributions. He also noted continued debt service on 1997 pension bonds, which Binder said totaled over $500 million.

He echoed the sentiment on the combination of federal cuts and the end of COVID funding. Binder also added that the debt defeasance and avoidance funds have been essentially depleted. He said many other one-time solutions have been used up, too.

“We’re facing a significant structural deficit that is projected to continue to grow over the next two fiscal years,” said Binder. He projected the structural deficit would reach around $4.5 billion in 2028.

“We need to focus on finding a way to run government more efficiently, more effectively, and that requires us to look carefully at ways to reduce costs,” he said.

Coming together

Sherrill would not go into specifics about any potential cuts or other cost-saving measures. The event served to set the table so residents know to anticipate a very tough budget season ahead, she said.

The governor will present her full spending proposal March 10, kicking off what Sherrill described as a collaborative process. “This is going to be a budget that we all work on together – and tough choices are going to be made,” she said. “And every choice of spending has an equal and opposite choice of cuts.

“So that is going to be something that we are going to present on March 10 – my vision of where I think we should go. But I’m also working closely with the Legislature.”

Recognizing challenges

Reaction continues to pour in following the announcement.

“We recognize the fiscal challenges New Jersey faces and the compounding problems caused by a softening economy and severe federal cutbacks,” Senate President Nick Scutari, D-22nd District, told NJBIZ. “Once Gov. Sherrill presents her proposal to the Legislature, we will work with her and our colleagues in the Assembly in making the hard decisions needed to craft a fiscally responsible budget that is responsive to economic conditions and continues to address the priority needs of the people of New Jersey.

“We share her commitment to fiscal discipline, to identifying budget savings and to making the lives of our residents more affordable.”

Senate Republican Budget Officer Declan O’Scanlon, R-13th District, told NJBIZ in a statement: “Well well well…Republicans, right again! Gov. Sherrill agreed with Senate Republicans that Trenton Democrats have been papering over a cratering budget mess, and tax increases aren’t the answer.  Republican members of the Senate Budget Committee sent her a letter two weeks ago urging her to embrace all the Republican reforms and restraints that were ignored by Democrats for years.

“Her first big test will be her March 10th budget address, and if she delivers on a promise to finally stand against tax and spend Democrats to help people who pay too much for government largesse, we are prepared to help.”

Searching for solutions

“Governor Sherrill deserves credit for her transparency in presenting this budget update. Her approach reflects a clear departure from the previous administration, which we consistently described as one marked by missed opportunities and the squandering of billions in federal funding,” Senate Republican Leader Anthony Bucco, R-25th District, said in a statement.

“I look forward to continuing to work with Governor Sherill in a bipartisan manner, as I have for many years. My offer is sincere, and Republicans would be honored to have a seat at the table to help put our state back on the right track, establish a more sustainable fiscal path, and protect taxpayers.”

Assembly Republican Budget Officer Brian Rumpf, R-9th District, said Sherrill acknowledged difficult fiscal decisions ahead; however, her remarks failed to fully confront the state’s underlying economic and structural budget problems.

“All we heard today is that Gov. Sherill wants to deplete the surplus. That is not a solution to the problems she discussed. Democrats’ policies are not going to suddenly change under a new Democrat governor. Look at the new boss, same as the old boss,” said Rumpf. “Unemployment will still be a major problem, affordability will still be a major problem, and the budget will be in worse shape long-term after this year.

“The past is prologue, and the situation is getting worse.”

Ready to help with ‘responsible budgeting’

New Jersey Business & Industry Association Chief Government Affairs Officer Christopher Emigholz said, “NJBIA and New Jersey’s business community strongly support the Sherrill administration‘s message of fiscal discipline delivered today.

“The Governor’s focus on responsible long-term budgeting, finding efficiencies and righting our fiscal ship without relying on more tax increases in an already overtaxed state is very welcome, appreciated and a necessary breath of fresh air for New Jersey taxpayers,” said Emigholz.

“NJBIA stands ready to help the Sherrill administration with the responsible budgeting plan described today.”

New Jersey Citizens Action applauded the launch of the portal. The statewide coalition and grassroots organization also urged the administration to expand the tool. It suggested including clearer reporting on corporate subsidies, tax breaks and state revenue sources.

“We applaud Governor Sherrill’s launch of an online portal that allows the public to see exactly where state funding goes, and for her continued commitment to a budget process that is fair, transparent, and allows everyone to give timely input,” said New Jersey Citizen Action Executive Director Dena Mottola Jaborska.

A ‘pro-democracy’ reform

“This tool is a much-needed pro-democracy reform that gives everyday New Jerseyans a seat at the table in vital budget decisions, making it possible for them to partner with legislators and Gov. Sherrill during the budget process. This would be a massive shift from the backroom budget process of three elected officials holding information no one else has, and diverting state resources to politically connected interests without the public’s knowledge or intervention,” said Jaborska.

“For too long, corporate interests have had an outsized voice in the budget process. For this reason, we urge that the portal be further developed to share information about which companies are getting what amounts of money, and what taxpayers are getting in return for these corporate subsidies.

“The tool should provide the public with transparency not only about spending but on revenue and lost revenue related to tax cuts. Members of the public want to see where the state’s revenue is coming from, and who is paying their fair share and who is not.”

‘Straightforward approach’

“The New Jersey Chamber of Commerce appreciates the Sherrill Administration’s openness, transparency, and straightforward approach in communicating today about the state’s fiscal challenges as the governor’s new team prepares its inaugural state budget,” said Tom Bracken, NJ Chamber president and CEO, stressing that the combination of cost-cutting measures and establishing sustainable long-term, organic sources of revenue will pull the state out of its dire fiscal situation.

“We also appreciate the clear acknowledgment that addressing this situation will require difficult but necessary decisions, including cutting expenses. We look forward to hearing more specific details when additional information is released on March 10.”

Editor’s note: This story was updated at 4:08 p.m. Feb. 26, 2026, with a statement from the New Jersey Chamber of Commerce. It was then updated at 10:29 a.m. Feb. 27 with a statement from Senate Republican Leader Anthony Bucco.

Please stay with NJBIZ for the very latest on this developing story.