New NJPP Analysis Finds at Least $3 Billion in Costs Hitting FY 2027 Budget

TRENTON, NJ - JANUARY 15, 2026 — Governor-elect Mikie Sherrill is set to inherit a state budget full of hidden time bombs that threaten to explode in Fiscal Year 2027, according to a new analysis released today by New Jersey Policy Perspective.

With historic cash reserves and an improved credit rating, New Jersey's finances appear healthy. In reality, the state faces billions in rising costs and revenue shortfalls that will severely constrain the incoming administration's options.

“The next budget will be one of the most challenging in years,” said Peter Chen, senior policy analyst at NJPP and author of the report. “All the one-time fixes and federal money that helped balance recent budgets are gone. Governor-elect Sherrill will need to raise new revenue or make deep cuts just to maintain current services—before she can pursue any new initiatives.”

Five major budget pressures:

• Stay NJ costs jump $900 million as the full annual cost of the senior property tax credit comes due

• $1.5 billion structural deficit already exists, forcing the state to spend down reserves

• School funding costs rise beyond inflation due to security and mental health requirements

• Federal pandemic funding expires at the end of 2026, with no state replacement

• State health benefit costs surge by 20 percent or more, adding hundreds of millions in costs

Federal cuts to Medicaid and other programs create additional uncertainty, potentially creating a $3.3 billion funding hole for hospitals and public health.

The report notes that the Murphy administration made important strides in fully funding schools and pensions. But those gains could be eroded without new revenue sources.

NJPP recommends focusing new revenue on concentrated wealth in individuals and large corporations, reducing expensive tax credit programs that benefit the wealthiest households and large multinational corporations, and exploring new options such as a wealth proceeds tax on net investment income.

“These budget time bombs are ticking,” Chen said. “The choices the Sherrill administration and legislature make in the coming months will determine whether New Jersey can maintain essential services and invest in its future, or whether we'll see harmful cuts that set the state back.”

The full report is available at NJPP.org.

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About NJPP:
New Jersey Policy Perspective (NJPP) is a nonpartisan think tank that drives policy change to advance economic, social, and racial justice through evidence-based research, strategic communications, and authentic partnerships.