Gov. Phil Murphy on Tuesday unveiled a proposed $55.9 billion state budget that calls for a new tax on New Jersey’s largest corporations to help fund financially strapped NJ Transit, as well as continued money for several property tax relief programs, another payment for public-worker pensions, and a big increase for the state’s school aid formula.
Murphy’s seventh budget plan, covering how the state government spends taxpayer money in the 2025 fiscal year that begins July 1, would once again raise state spending to a record level under the Democrat’s administration, though the year-to-year increase over the current $54.3 billion budget is smaller than recent years and in line with inflation.
This comes at a time when the state, like many of its residents, faces a hazy financial picture marked by dwindling tax revenue, as well as high inflation and interest rates.
The spending plan — Murphy’s second-to-last budget before the term-limited Democrat leaves office — also includes a $6.1 billion surplus set aside as a cushion for tough times, though that’s smaller than the $8.1 billion surplus in the current budget.
At the same time, the governor is seeking a new fee on gun permits and a new tax on trucks delivering warehouses, while getting rid of a sales tax waiver on electric vehicles, a sales tax holiday on school items, and free entry to state parks.
But his proposed budget does not include an increase in the state sales tax, as had been speculated. Nor is there a hike in the state gas tax, though officials have said that could be negotiated in the coming months as state leaders face a deadline to renew the state’s Transportation Trust Fund in June.
Murphy laid out the plan during an hour-long budget speech before the state Legislature and other officials at the Statehouse in Trenton. He said his proposal would “make life more affordable for more families by lowering costs and increasing opportunities” at a time of “economic uncertainty and unease.”
“Our budget will ensure that New Jersey retains its proud reputation as the best place, anywhere in America, to raise a family,” Murphy said. “We are prepared to meet this moment.”
But the most striking new plan drew mixed reactions — one seeking higher taxes on corporations to provide a long-sought dedicated funding source for mass transit just two months after Murphy allowed a previous business tax to expire. While progressive advocates praised the idea, which needs legislative approval, New Jersey’s business community and Republican state lawmakers sharply rebuked it.
Meanwhile, Republicans said Murphy’s proposed spending is still too much in the face of fiscal and economic concerns. The plan calls for the state to spend $1.8 billion more than the money it would taken in from taxes and fees during the year, which means money would be pulled from the surplus to balance the budget.
Also hovering over the plan: Murphy’s wife, First Lady Tammy Murphy, is running for U.S. Senate in a heated battle for the Democratic nomination with U.S. Rep. Andy Kim in the June primary.
The governor and his fellow Democrats who control the state Legislature must now negotiate a final budget by June 30. The months before that deadline are usually a whirlwind period that includes closed-door talks, horse-trading, and public hearings.
Here’s a closer look at what Murphy’s budget proposal includes:
New business tax to fund NJ Transit
The governor is seeking to levy a new tax on the state’s wealthiest corporations to provide continued annual funding for NJ Transit, the state’s bus and rail agency facing a nearly $1 billion shortfall and a 15% fare hike on riders. Advocates have asked for a dedicated funding source for NJ Transit for years.
The move would apply to about 600 companies in New Jersey that make a profit of at least $10 million a year. They would pay a 2.5% tax on all earnings, retroactively to Jan. 1, 2024. The Murphy administration anticipates collecting about $1 billion a year for NJ Transit through the tax, although officials acknowledge the amount would vary each year.
Actually, Murphy is calling it a Corporate Transit Fee, not a tax.
The hike comes after Murphy stood by a promise to let a much-debated 2.5% surcharge on New Jersey’s corporate business tax — or CBT — expire at the start of this year, to much applause from the state’s businesses. Advocates called for the state to reinstate the surcharge — levied on about 3,000 companies that make $1 million or more — to help fund NJ Transit.
Instead, Murphy’s new tax falls somewhere between the two — a partial restoration of the surcharge, for about 20% of businesses it affected.
“We will raise this revenue without placing any new burdens on small- and medium-sized businesses,” Murphy said in his address. “And let me take this opportunity to thank, in advance, the big companies which will be stepping up.“
The tax would be done in conjunction with the 15% NJ Transit surcharge, not in place of it, officials said.
The New Jersey Businesses and Industry Association eviscerated Murphy for the plan, saying he reversed course on the expired surcharge. Michele Siekerka, the group’s president, called it “another new and unnecessary corporate business tax of a different name,” noting New Jersey is an “extreme outlier” when it comes to state taxes on business.
“That Governor Murphy would re-commit to a new business tax at a time of a multi-billion-dollar surplus to fund NJ Transit when there is no correlation between those impacted (corporations) and public transportation — which he acknowledges himself — is nothing short of a punitive action against our largest job providers,” Siekerka said. “It is a punishment they do not deserve.”
Tom Bracken, president of the New Jersey Chamber of Commerce, had a similar reaction.
“I hope this is a nightmare that isn’t true,” Bracken said.
Regina Egea, president of conservative think tank Garden State Initiative, said the tax “blindsides our state’s job creators and undermines whatever trust or goodwill that had developed.”
Bur the move appears to be an answer to criticism that Murphy — and most governors before him — have shortchanged the agency.
“As our friends in the press are fond of reminding me, I have said many times that I would fix NJ Transit even if it killed me,” Murphy said. “Bear with me. I appear to still have a pulse.”
Alex Ambrose, a policy analyst for left-leaning think tank New Jersey Policy Perspective, said it’s “hard to overstate how big of a deal this is for transit riders and the state as a whole.”
“The governor’s proposal would finally provide stable, dedicated funding to an agency that’s never had it, setting a strong foundation to protect NJ Transit now and in the future,” Ambrose said.
Antoinette Miles, interim state director of the New Jersey Working Families Party, said the tax is “an important step toward securing a bright future for our state’s public transit system and ensuring that it will be able to continue to provide mobility for working families traveling to work, doctor’s appointments, and to see friends and family.”
Murphy needs the Legislature to introduce a bill to establish the transit fee fund. But even if the bill passes and is signed into law, there is no legal guarantee that lawmakers or the administration wouldn’t claim the money for other purposes — unless the Legislature amends the state constitution to dedicate the funds for this purpose. Administration officials declined to say whether they will ask state Senate and Assembly leaders to take this extra step.
State Sen. Paul Sarlo, D-Bergen, the chairman of the Senate Budget and Appropriations Committee, called the new tax “a good starting point” to funding NJ Transit.
”Clearly, getting NJ Transit a stable funding source is a priority,” Sarlo told NJ Advance Media. “There’s a lot of options of how to get there.”
State Assembly Speaker Craig Coughlin, D-Middlesex, said in a statement: “As we work together over the coming months, I remain convinced that any discussion about increasing corporate taxes must be had with our state’s long term fiscal health and a further commitment to reducing property taxes in mind.”
That appeared to be a reference to Stay NJ, the program Coughlin spearheaded to give a big tax cut to New Jersey’s seniors. It is not slated to not take effect until 2026, and experts are uncertain if it will get fully funded.
Tax relief
Murphy said his budget plan includes more than $3.5 billion in tax relief in a state with the nation’s highest property taxes and one of the highest costs of living. That includes:
- More than $2 billion to cover a third year of funding for the ANCHOR program, which gives 1.3 million homeowners up to $1,750 and more than 700,000 renters up to $700 to help offset property taxes.
- $200 million more in ramp-up funding for the Stay NJ property tax cut for New Jersey seniors, scheduled to take effect two years from now.
- Funding to cover increased eligibility for the Senior Freeze program for seniors. Another 58,000 residents can now take part, according to a recent announcement.
- Keeping the recently expanded Earned Income Tax Credit, the Child and Dependent Care Tax Credit, and the Child Tax Credit. The last of which allows parents with young children to receive up to $1,000 per child.
“At a time when families are grappling with higher prices at the checkout counter, we are putting more money back into their pockets than ever before,” Murphy said.
There is also money for a new program called RetireReady NJ, a state retirement savings program for private sector employees — especially for those who don’t have a pension or or 401(k), Murphy said. It’s mandatory for businesses in the state with at least 25 employees.
Pensions and schools
Murphy’s plan earmarks $7.1 billion to fully fund the state’s obligations to the public-worker pension system — the fourth straight year of full funding.
The system supports the retirement of about 800,000 active and retired state and local government workers. But it was underfunded for years, with the state skipping or shorting payments.
“We are proving that New Jersey can be trusted again,” Murphy said.
The budget is also set to fully fund the state’s aid formula for the first time, completing a seven-year ramp up. Murphy’s proposal includes a record total of $11.7 billion for public schools, an increase of $908 million.
That includes $124 million to add 1,000 more children to the state’s pre-K program.
“You cannot put a price tag on the health and well-being of our children,” Murphy said. “This is the most sacred investment we can make.”
Not every district will see an increase in aid, though. New Jersey allocates state school aid via the heavily debated formula, which was installed in 2009 and is based on districts’ enrollment, poverty levels, the strength of their tax base, and other factors year by year. Districts may gain, lose, or receive the same aid in any year depending on those factors.
State officials said they will release a list last this week of how much aid each district would receive under the budget proposal.
Gov. Phil Murphy holds a World cup trophy after delivering his state budget address Tuesday at the Statehouse in Trenton. New Jersey will host the 2026 men’s World Cup final.Phil McAuliffe
Electric vehicle tax break gone
Say goodbye to another monetary incentive to buy electric vehicles. The state plans to phase out a 20-year-old sales tax waiver on EVs over three years, a move expected to net about $70 million annually.
Electric vehicles make up 10% of New Jersey’s car sales, so administration officials expect that sales tax revenue to eventually rise to $200 million annually. Electric car sales are expected to increase thanks to Murphy’s rule requiring 100% of new cars sold in the state to be electric starting in 2035.
Farewell to freebies
The Murphy administration has also proposed eliminating some of the freebies New Jerseyans enjoyed over the last few years.
The sales tax holiday for back-to-school shoppers would be chopped. State park entrance fees would return. The $170 teacher certification fee would also come back.
Hiking gun permit fees
Murphy has repeatedly called for raising licensing fees and imposing higher taxes on guns and ammunition, though the idea has been nixed from past budgets. His new proposal renews the push, though Murphy’s administration has not said how much the new fee would be.
The administration did say the move would bring the state about $4 million a year.
Cutting Democratic spending
Democratic lawmakers added about $1 billion in spending at the last minute last year to the current budget before Murphy signed it into law — including about $700 million to fund projects in their home districts.
The governor’s new proposal does not include all of it this time. That includes $77 million for colleges and universities. But such additions are normally made at the end of the budget process in June.
Warehouse tax
In warehouse-heavy New Jersey, transportation companies would be expected to pay $1 every time a truck delivers a load of goods to a warehouse. The state said it would collect about $10 million a year from the move.
Eric DeGesero, a lobbyist for the New Jersey Motor Truck Association and the Fuel Merchants Association of New Jersey, said this is “one more fee that will be passed on to consumers.”
Boosting the fee on HMOs
The state tax on managed care companies would rise from 5% to 6%.
Other items
Murphy’s proposal also includes:
- $120 million to finish the State Police Training center.
- $91.8 million for food assistance programs.
- $57 million to help increase affordable housing. That includes funding for some towns to develop dwelling units at single-family homes — such as apartments in basements and garages or smaller houses in backyards — under a pilot program.
- $30 million for a two-year initiative to help end homelessness among military veterans.
- $21 million to convert rooms at the state-run veterans’ nursing homes from doubles to single, to prevent the spread of illness, plus $2 million to replace equipment and mattresses at the veterans’ homes.
- $10 million for student-teacher stipends and $5 million to help teachers pay loans.
How Democrats, Republicans responded
Sarlo, the Senate budget chairman noted Murphy’s proposed budget validates the strategies from prior years, such as building up a large surplus and paying down debt.
“We are in much better shape today than we were yesterday,” Sarlo said.
Republicans disagreed strongly with those assertions.
“From our perspective we think when you look behind the curtain, you’re going to see something that’s a lot different than what was projected today,” Senate Minority Leader Anthony Bucco, R-Morris, said during a news conference Republican leadership held after the speech.
Bucco was specifically critical of the state’s reduced surplus.
“This budget continues to spend more money than it saves,” he said.
“History is going to judge this administration as one of the tragically missed opportunities,” added Sen. Declan O’ Scanlon, R-Monmouth.
Republicans also criticized the proposal for a business tax to fund NJ Transit. Assembly Minority Leader John DiMaio, R-Warren, said the Murphy administration could have found a way to fund the agency without it.
“We’re planning to ask tough questions during the budget season to put the feet to the fire of this administration,” said Assemblywoman Nancy Munoz, R-Union.
NJ Advance Media staff writers Karin Price Mueller and Steven Rodas contributed to this report.
Susan K. Livio may be reached at slivio@njadvancemedia.com. Follow her on Twitter @SusanKLivio.
Jelani Gibson may be reached at jgibson@njadvancemedia.com. Follow him on X at @jelanigibson1.
Brent Johnson may be reached at bjohnson@njadvancemedia.com. Follow him on X at @johnsb01.