Gov. Phil Murphy’s upcoming budget proposal will include significant cuts in spending — including the removal of nearly all one-time appropriations from fiscal year 2025 and a significant if not complete cut of discretionary and non-competitive grants — multiple sources familiar with early budget discussions told ROI-NJ.
The cuts, which will be a key part of the governor’s budget address on Feb. 25, are expected to total billions of dollars, the sources said.
The sources told ROI-NJ that the goal is not necessarily to reach a desired budget number but to significantly reduce the structural deficit in the fiscal year 2026 budget, the governor’s last.
The fiscal year 2025 budget was a record $56.6 billion and had a structural deficit of $2.2 billion — meaning expected expenses were $2.2 billion higher than expected revenues.
“This is about doing the responsible thing, not spending more than you take in, and leaving the next governor not only with a surplus but with a manageable structural deficit,” one of the sources said.
Added another source: “This is evidence that this is going to be a very tough budget season and will require some really tough decisions.”
All sources requested anonymity because they are not authorized to speak publicly on the subject.
The potential cuts in spending can be broken down this way:
1. Removal of nearly all one-time appropriations from fiscal year 2025
This may be the easiest cut to make politically, as these are the so-called Christmas Tree items that often are added by the Legislature during the close of the budget process.
A complete list of such add-ons (there are hundreds) can be found here.
Please note, these cuts don’t necessarily come from the removal of appropriations in 2025 (they were one-time adds), but in the effort to limit new appropriations (from the Legislature) in the fiscal year 2026 budget.
This could be a savings of many hundreds of millions of dollars.
2. Significantly reduce discretionary grant programs
Discretionary grants can be found in a number of areas (think recreation, transportation or parks programs), all of which have been beneficial to the state.
These cuts are a sign of the tough budget times, a traditional belt-tightening as they say, a source said.
The cuts are not expected to be complete (though some will be), but a source said it’s fair to suggest programs may only get half (or less) of the appropriation they got previously.
These cuts also could total in the hundreds of millions of dollars.
3. Significantly cut non-competitive grants (by 100 percent in many cases)
These are programs that go to a single beneficiary (think the Red Cross or Big Brothers/Big Sisters).
These cuts also could be in the hundreds of millions. More so, they likely will face the hardest challenge of being restored.
While a budget with a smaller structural deficit makes sense from a financial standpoint, it will be challenging politically to get it passed, as it would cause a lot of pain to legislators (who would not get their last-minute add-ons) and nonprofits (which will be greatly hurt by these reductions).
To be sure, these potential cuts will be cheered by many Republicans and conservative groups, which have long warned this day was coming and repeatedly asked how and why the state budget has been able to balloon so much during the Murphy administration.
Gov. Chris Christie’s final budget, for fiscal year 2017, was just $35.5 billion.
A source familiar with the discussions said Murphy is determined to leave the next governor a state in better shape than the one he inherited.
Administration officials long have proudly pointed to the state’s current surplus — approximately $6 billion, as opposed to the $400 million he inherited.
To add to that total, cuts must be made.
The incredible thing is this: Even with these cuts, the budget total may not decrease that significantly.
In addition to the expected cost-of-living and inflation increases, many budget challenges stem from ongoing cost increases in a number of areas, including health care (Medicaid costs are on the rise) and education (school funding).
Another area of concern is the cost of the Stay New Jersey program — an effort led by Assembly Speaker Craig Coughlin (D-Woodbridge) that was implemented last year, despite numerous questions about how the state would be able to afford it moving forward.
Coughlin, as well as State Sen. President Nick Scutari (D-Clark), Senate Majority Leader Teresa Ruiz (D-Newark), Senate Budget Chair Paul Sarlo (D-Wood-Ridge), Assembly Majority Leader Lou Greenwald (D-Voorhees) and Assembly Budget Chair Eliana Pintor Marin (D-Newark) are all aware of the fiscal constraints the state is under.
That being said, the budget is a negotiated process between the executive and legislative branches — one that must be finished by June 30.
How much political capital Murphy has will be determined in the coming months.
But, if nothing else, a source said a budget address with the aforementioned cuts will be further evidence that the governor is serious about reducing spending.
The person said the speech will be a continuation of an effort that began last fall, when the governor ordered all departments to freeze hiring, eliminate most salary increases and reduce budgets by 5%, reported exclusively by ROI-NJ.
“The governor is really serious about this,” a source said.
