The latest revenue forecasts put forward separately by Gov. Mikie Sherrill’s administration and the Legislature’s nonpartisan analysts are in virtual alignment — including on economic uncertainty posed by the U.S. military conflict overseas.
Last month, the Sherrill administration outlined its budget estimate for the fiscal year that begins July 1, projecting only modest year-over-year revenue growth to support a slight increase in total spending.
Nonpartisan fiscal analysts from the Office of Legislative Services unveiled their own forecast on Monday, and they landed within a fraction of the executive branch estimate.
How much revenue the state collects over a fiscal year is key in determining how much funding likely will be available for such needs as state aid for public schools to direct property tax relief programs like Anchor and Stay NJ.
In a typical year, the near-agreement on forecast revenues — both branches of government foresee collections topping $59 billion during fiscal year 2027 – would establish increased certainty as the governor and lawmakers work together to adopt a budget by a July 1 constitutional deadline.
However, clouding matters this year are the military operations against Iran begun in late February by the U.S. and Israel. The conflict has since ensnared other nations in the region, including Lebanon, and is also triggering a precipitous increase in gas prices internationally. In a Truth Social post on Monday, President Donald Trump said Iran “could be taken out in one night and that night might be tomorrow night.” In another post a day earlier, Trump used profanity, called Iran’s leaders “crazy bastards,” mocked Islam and promised to step up bombing, leading some in Congress to call for the 25th Amendment to force the president from office.
Economists warn that a prolonged conflict could exacerbate inflation and even increase the likelihood of U.S. recession, a scenario that could have a major impact on the next state budget.
Separate is another group of concerns: the continued advancement of artificial intelligence technology and its potential to displace many workers. That could slow economic growth both nationally and in New Jersey. In March, 25% of U.S. job cuts were attributed to AI, according to research by Challenger, Gray and Christmas, the Chicago-based outplacement company.
That lingering economic uncertainty was a theme during testimony before the Assembly Budget Committee on Monday as officials from the Department of the Treasury and the top fiscal analysts from the OLS discussed their respective economic forecasts for the first time publicly.
“Federal fiscal, trade and tax policy shifts have added uncertainty, and the ongoing conflict in the Persian Gulf introduces additional risks for the year ahead,” Treasurer Aaron Binder told committee members.
OLS revenue and economic policy analyst Oscar Mendez also used the word “uncertainty” as he discussed the long-range outlook.
“Intensifying geopolitical tensions and concerns about the march of technological progress have been adding to uncertainty as to the nation’s economic course,” Mendez said. “While current economic forecasts reflect cautious optimism, downside risks have become more pronounced,” he said.
“Without a shared commitment to reduce, and ultimately eliminate, the structural deficit, the surplus will disappear in the next few years, forcing us to consider extreme spending cuts.” — Treasurer Aaron Binder
For now, the experts from both the Treasury and OLS said they are holding to modest growth projections during fiscal year 2027. Binder also noted a revenue update from his department will be provided to lawmakers next month once all of the April income tax payments are collected and counted.
“By then, we will know how the bulk of the annual spring filing season turned out, and we may – or we may not – have more uncertainty to contend with,” Binder said.
Agreement on a revenue forecast is one major piece of the budget puzzle that must click into place before deadline. This year, finding accord on the ledger’s spending side appears to be the more difficult task.
Sherrill, a first-term Democrat, is proposing to raise annual spending in several areas that have widespread public benefits, such as mass transit and public education. She also is planning roughly $2 billion in cuts to other budget areas, including many line items that represent the funding priorities of fellow Democrats who control the Legislature.
Part of her savings plan would hit the Stay NJ property tax relief program, which has been championed by Assembly Speaker Craig Coughlin (D-Middlesex) and was a frequent subject of discussion Monday.
Binder acknowledged the governor’s proposed budget includes some “very tough choices.” However, he also said a top priority of Sherrill’s is to begin to narrow a wide structural gap that threatens the budget’s overall sustainability after years of state government’s spending more than it takes in annually from taxes, fees and other revenue sources.
Another fiscal priority is protecting a budget surplus that will be used as a hedge against any revenue losses caused by a potential recession, Binder said.
“Without a shared commitment to reduce, and ultimately eliminate, the structural deficit, the surplus will disappear in the next few years, forcing us to consider extreme spending cuts,” he said.
Later, Binder also outlined an updated forecast Treasury issued for the remaining months of the current fiscal year, which added $180 million to the expected bottom line.
In its near-term estimate, OLS foresees tax collections topping those updated Treasury estimates by approximately $200 million.
The executive branch and OLS “are optimistic about FY2026 revenues,” Mendez said. “FY2027, however, is more complicated.”
This story is made possible in part by the Corporation for Public Broadcasting, a private corporation funded by the American people.
