Murphy, state leaders hammer out deal on N.J. tax increases

With a week to go before the deadline, Gov. Phil Murphy and legislative leaders are finalizing a deal on a new state budget that would include tax hikes on cigarettes, luxury homes, and online gaming in New Jersey — but not on bowling, batting cages, and laser tag, as originally proposed, NJ Advance Media has learned.

The tentative agreement between Murphy and his fellow Democrats who run the New Jersey Legislature — state Senate President Nick Scutari and Assembly Speaker Craig Coughlin — would also include full payments for public-worker pensions, the state’s school funding formula, and the ANCHOR property tax relief program, three sources directly familiar with the talks confirmed.

The budget outlines how the state government plans to spend taxpayer money in the fiscal year that begins July 1, next Tuesday.

The plan would still have a structural deficit of less than $1.5 billion, meaning the state is slated to spend that amount more than it takes in from revenue. That’s a little more than the $1.2 billion deficit Murphy originally projected in February.

And the state would keep about a $6 billion surplus, said the sources, who spoke on the condition of anonymity to discuss the deal. Leaders can pull from the surplus to cover the budget gap.

The hope is for Democrats to introduce the final plan by Wednesday at the earliest, vote it out of committee that day, and have the Legislature cast final votes by Friday at the earliest, according to one legislative source. Another said Wednesday is “ambitious.”

Under the state constitution, Murphy has until June 30 — a week from today — to sign a balanced budget, his final spending plan before leaving office in January.

The deal means the state will likely avoid a government shutdown, which some officials feared a few months ago.

But expect more arguments about how leaders are once again rushing to finalize the budget in the closing days before the deadline — something critics say flies in the face of transparency.

Murphy unveiled a record $58.1 billion state budget proposal in February that included $1.2 billion in fee and tax increases to help pay for the spending. That was followed by several public hearings in recent months.

A final price tag and other figures are not yet available for the final budget that leaders are negotiating. One legislative source said there‘s still “stuff to button up,” making sure “all numbers are right.”

But these are the details known as of Monday:

• Murphy originally proposed levying the state sales tax on several recreational activities, including bowling alleys, baseball batting cages, basketball and tennis courts, laser tag, pool halls, driving ranges, health clubs, mini golf, skating rinks, and more. Critics dubbed them “fun” taxes, and lawmakers from both parties were immediately opposed, especially because this is a big election year, with voters electing Murphy’s replacement as governor and all 80 seats in the Assembly. Those tax hikes will not make the final cut, sources said. Officials have said a recent $785 million windfall in tax revenue staved off the need for many tax hikes.
• There will be a tax hike on luxury homes and other property worth between $1 million and $2 million.
• There will be a 30-cent hike on cigarettes, bringing taxes on the items to $3 a pack.
• There will be tax hike of less than 20% on money casinos pay on revenue from sports betting and online gaming. That’s lower than the 25% Murphy originally wanted.

The state is also not expected to make changes to the Stay NJ program, designed to cut property taxes in half for most residents 65 and older in the state. Payments are expected to begin in 2026, though the state won’t have to shoulder the full price tag of more than $1 billion until the budget due July of 2026.

Critics have called for the state to revamp the program, including lowering the eligibility threshold. Coughlin, the Assembly speaker who spearheaded the program, has suggested he’d be open to that. But that is not included in this budget deal.

Meanwhile, sources also told NJ Advance Media that leaders are seeking to cut $100 million from the cost of providing health care for hundreds of thousands of state workers as “astronomical” insurance premium hikes are expected next year.

Final numbers related to the tax increases and whether there will be other hikes or cuts in the budget were unclear as of Monday afternoon.

Also uncertain is how much leaders will tack on in additional spending known as “Christmas tree” spending and the fate of other legislation wrapped up in budget talks — such as a bill that would revamp legal notices in the state.

Those details are expected to emerge in the flurry of the next few days.

Critics have long complained that while Murphy introduces a budget proposal in February, he and lawmakers usually don’t come to a final agreement until the closing days before the deadline. Sometimes, votes happen just after the budget document is unveiled or even before a full plan is available for lawmakers and the public to examine.

Murphy himself said during a recent radio interview that he’d like to change the annual deadline rush.

“Our process is really good, but the end process needs help,” he said during his latest call-in show on WBGO. “I would love to fix the end.”

Meanwhile, the budget is being put together under the shadow of possible sweeping federal budget cuts — including billions to Medicaid and food assistance — as Republicans who control Congress push through a new federal spending bill.

It was unclear Monday how those looming reductions could affect the state budget deal. Leaders have said they may need to reopen the budget to account for cuts, though sources in recent days most may not take effect until next year’s budget.

Republican lawmakers have also sharply criticized Murphy and his fellow Democrats for annual jumps in spending. State government spending is up more than 65% than the last budget before Murphy took office in 2018.

NJ Advance Media staff writers Jelani Gibson and Susan K. Livio contributed to this report.

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Brent Johnson may be reached at bjohnson@njadvancemedia.com. Follow him on X at @johnsb01.