New Jersey Gov. Mikie Sherrill unveiled the first spending plan of her term on Tuesday, proposing a $60.7 billion budget that calls for what she’s describing as record property tax relief, as well as historic levels of funding for schools — both of which could ease burdens on New Jerseyans struggling with the state’s affordability crisis.

But with the state facing a deep gap between its spending commitments and revenue, Sherrill is risking accusations of going back on a campaign promise not to raise taxes.

Some higher-income Garden State seniors could soon lose access to a tax relief program intended to keep them from fleeing the state, just weeks after they got their first checks from the program. And Republicans are deriding other changes the governor describes as closing tax loopholes for businesses, saying they amount to more taxes in an already expensive state.

Sherrill’s proposal for the fiscal year ending in 2027 calls for several cuts to keep New Jersey’s budget relatively flat. The plan would increase the budget by just 1.6%, about $980 million less than the current fiscal year’s budget.

The budget proposal projects state revenue to remain essentially flat compared to the current fiscal year as well.

“This is the budget we can afford,” Sherrill said in a presentation to the Legislature on Tuesday. “If there are things you think we need to add — come to me with places we can cut. It’s simple math: Any additions require subtractions.”

State income tax revenue continues to beat expectations. Corporate tax collections have lagged but are expected to rebound in the next fiscal year.

Other changes Sherrill proposed could make it harder for businesses to avoid paying taxes.

Her plan calls for capping corporate net operating loss deductions at $1 million for the next three years; Sherrill says such deductions have been abused since the COVID-19 pandemic. She’s looking to limit the alternative business calculation deduction to small businesses, scaling back a mechanism created to help mom-and-pop operations stay afloat during the Great Recession of 2008.

“That helps warehouse workers, cashiers, health care aides — people who keep our economy running,” Sherrill said. “It’ll reduce strain on hospitals, easing the expected surge in ER care, the most expensive kind [of health care]. And it’ll raise $145 million a year, to cover Trump’s extra Medicaid costs.”

Sherrill also wants a new fee on businesses with at least 50 employees enrolled in NJ FamilyCare, the state-funded health insurance program, to help the state pay for that coverage.

Republican lawmakers said the tax changes were essentially hikes.

“That revenue that’s going to be raised is going to be borne not only by the businesses, but by the consumers that those businesses sell to,” state Senate Minority Leader Anthony Bucco said. “Businesses don’t just eat those expenses; they pass it on in the products and services. So that’s going to land squarely on the backs of our taxpayers.”

Between spending cuts and new revenue, the new budget trims the structural deficit from $3 billion to $1.6 billion.

That would put the state on track to eliminate the structural deficit in the coming years, Sherrill said, but it still means New Jersey will need to spend almost $2 billion from the state surplus.

Sherrill chastised the budget decisions of previous Gov. Phil Murphy, a fellow Democrat, for exacerbating New Jersey’s long-term financial problems.

“In the final working days of the last administration, New Jerseyans were stuck with nearly $3 billion in extra spending — $2.5 billion in corporate tax breaks and $240 million in giveaways,” Sherrill said. “That can’t happen. We can’t afford that process anymore. It’s not accountable; it’s not efficient; it’s not what the people of New Jersey deserve.”

Trump’s signature law — the “One Big, Beautiful Bill” — drastically increased costs for states by slashing federal funding for social safety net programs like Medicaid, the Affordable Care Act and SNAP. Inflation, energy prices and ongoing uncertainty over federal funding has created a volatile budgeting environment, the governor said.

“Right now, we’re facing a perfect storm of fiscal challenges; short-term and long-term, federal and state,” Sherrill said.

Property taxes

Property tax remains a central part of New Jersey’s affordability crisis. The average combined municipal, school and county property tax bill in the Garden State was $10,570 last year, according to the state.

Sherrill is proposing $4.2 billion for property tax relief. The bulk of that would be split among three programs: $2.3 billion for the ANCHOR rebate program for homeowners and renters; $350 million for the Senior Freeze program that limits tax increases for some senior homeowners; and almost $700 million for the Stay NJ program which pays senior homeowners up to $6,500 to help cover their property taxes.

Stay NJ, a priority for Assembly Speaker Craig Coughlin that was instituted under Murphy, is currently funded at $1.2 billion. The program began mailing its first checks last month, but it has faced criticism for its eligibility rules, which allow households with incomes as high as $500,000 to benefit.

Now it faces a drastic scaling back amid Sherrill’s proposed spending cuts, setting up what could be an intraparty showdown at the State House in the coming months.

Coughlin issued a statement after Sherrill’s speech that didn’t explicitly mention Stay NJ, and said he looked forward to working with the governor on making property tax relief programs more sustainable.

Sherrill is calling for the income limit to be lowered to $250,000 and for the benefit to be capped at $4,000.

“Stay NJ is a great program ... but it benefits households that make as much as $500,000 a year. I'm changing that to safeguard Stay NJ for middle-class seniors. If you make $250,000 or less, your tax relief is in this budget,” Sherrill said. “That’s going to save taxpayers hundreds of millions of dollars a year.”

Republicans seized on the proposed Stay NJ cut as a hypocritical move after Democrats spent years promising to get the program enacted.

“The last thing that should be cut is property tax relief,” said state Sen. Declan O’Scanlon, who is the Republican budget officer in the Senate. “It kills me that people say that’s the first thing that should be on the chopping block.”

The ANCHOR program, which currently sends checks of up to $1,750 to homeowners and up to $700 to renters, already has a $250,000 income cap.

Sherrill’s proposal would change ANCHOR to remove the $250 bonus the program currently offers to senior homeowners and to remove overlap with Stay NJ.

School aid boost

Sherrill is calling for a boost in state school aid to $12.4 billion, the largest amount ever and a 3.1% increase over the current fiscal year.

O’Scanlon said he hopes Democrats in Trenton will make changes to the formula that determines how that aid is distributed among New Jersey’s roughly 600 school districts.

“All that money, virtually all of it, is going to a handful of districts, while hundreds of districts are left choking on fumes,” O’Scanlon said.

Sherrill is proposing hiring a new cadre of experts to monitor and assist local school districts in managing their finances.

That idea comes as districts around New Jersey face budget crises from either prior cuts to state aid or their own financial bungling.

Beyond grade schools, Sherrill is calling for increased funding for pre-K programs at hundreds of districts. She also budgeted $582 million for the state’s child care assistance program, which would allow 2,500 more children from low-income families to receive subsidized child care.

Pension payments

Sherrill’s budget proposal includes a $7.3 billion payment to the state’s chronically underfunded pension system.

The governor said she was proud to ensure the state meets its commitment to public workers, but criticized past governors of both parties for failing to make their own payments. If full payments had been made in the past, the pension payment in the new fiscal year would be $1.15 billion.

“Imagine what we could be doing with that money, if for 30 years, elected officials hadn’t mortgaged our kids’ futures,” Sherrill said.

Now the hard part

Sherrill’s address kicks off the annual budget process in Trenton. State lawmakers will now hold hearings before drafting, debating and voting on a budget bill. Once a bill is passed, Sherrill will decide whether to sign it or issue a veto.

All of this will play out over the coming months. New Jersey must adopt the budget for fiscal year 2027 by the end of June, or the state government will shut down on July 1.

Democrats hold large majorities in both the state Senate and Assembly. But those majorities span a range of ideological viewpoints, and some of the cuts Sherrill is proposing target past party priorities, such as Stay NJ.

A joint statement from Senate President Nick Scutari, Senate Majority Leader Teresa Ruiz and Senate budget chair Paul Sarlo said the Legislature is “well-equipped to address these challenges” and would work with Sherrill to “develop a budget that reflects our residents’ priorities and addresses the needs of our state responsibly.”

Republicans have urged Sherrill and Democratic lawmakers to make the budget process more transparent.

It’s been common in recent years for lawmakers to introduce the budget bill – a document that is typically hundreds of pages long – just days or hours before a final vote. Fiscal hawks and open government advocates have long criticized that rushed process.

“If this process rolls out in an open and transparent manner, and we actually get a budget ahead of time that we’re able to debate and talk about, and the press is able to look through and ask questions on, that’ll be a major change from what we’ve had in the past. And that’ll be welcomed by our party,” Bucco said.

This story has been updated with more information.

Correction: Due to an editing error, a previous version of this story misspelled the title of Assembly Speaker Craig Coughlin.