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From NJ PBS Studios, this is NJ Spotlight News with Brianna Vannozzi.

- Hello, and thanks for joining us tonight.

I'm Joanna Gagis, in for Brianna Vannozzi.

Governor Mikey Sherrill delivered her first budget address for fiscal year 2027 today, before a joint session of the legislature in Trenton, proposing a record $60.7 billion budget.

The governor prefaced this speech with a press conference a few weeks ago, warning of a $3 billion structural deficit and tough choices ahead.

She's also promised not to raise taxes on New Jersey residents.

Today, Governor Sherrill laid out her plan and detailed where she plans to expand funding.

Let's take a listen to a portion of that speech.

Today I'm submitting to this legislature the most fiscally responsible budget that our state has seen in years.

It fully funds the pension.

It does not raise taxes on individual New Jerseyans.

And it does include $2.6 billion in budget solutions, nearly $2 billion in tough necessary cuts, and over $700 million in new revenue from closing corporate loopholes.

Together, it will put us on the path to balancing our budget structurally in 2028 and beyond.

And it rewards our tough choices with savings.

Savings will invest back into lowering costs for New Jerseyans, providing a better future for our kids, building a government that's accountable.

This budget is a path to getting our fiscal house in order.

And it's a platform from which we'll generate jobs and opportunity for the working families who sent us here to fight for them.

New Jersey is the 22nd largest economy in the world.

We have the best entrepreneurs and builders, the most scientists and engineers per square mile, the most courage.

The reason I take this work so seriously is I know we have a chance to build something truly special.

If we make the effort to lay that foundation.

So here's how we'll get it done.

Our work starts by ending previous administrations habit of tacking last minute giveaways onto each budget.

These days we simply can't afford that.

For example, 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.

That can't keep happening.

We can't afford the process anymore.

It's not accountable.

It's not efficient.

It's not what the people of New Jersey deserve.

I've spoken to leadership in both houses.

We have to chart a new way forward.

And at the same time, this budget protects middle-class families who are bearing the burden of soaring property taxes.

In fact, it provides the most property tax relief in state history, nearly $4.2 billion next year.

Relief is essential, and Stay New Jersey is a great program.

It keeps seniors, so often, living on a fixed income in their home.

But it benefits households that make as much as $500,000 a year.

I'm changing that to safeguard state New Jersey for middle-class seniors.

If you make $250,000 or less, your tax relief is in this budget.

That's going to save taxpayers hundreds of millions of dollars a year and will target more relief to low- and middle-income senior renters through the Anchor Program.

That's a fairer, more efficient use of taxpayer money.

And we're also pairing back... [applause] We're also pairing back some corporate tax breaks, capping the deduction that our highest-earning companies can take for net operating losses.

After COVID, Moore started claiming this deduction to write off losses seen in those shares.

And now it's time to move on.

We won't keep shortchanging the future.

Limiting this loophole saves taxpayers almost $500 million.

At the same time, some companies have been using a deduction that was introduced 15 years ago to help small businesses weather the Great Recession.

It's called the Alternative Business Calculation.

And the whole point was to level the playing field for entrepreneurs.

But bigger companies started using it too.

So our budget limits that deduction to the actual small businesses it was meant for.

Capping eligibility at business income of a million dollars a year.

The car repair shop and the diner down the block who are the ones who should benefit.

The fix will save another 120 million dollars a year without taxing families a dollar more.

Altogether, the common sense changes outlined in my budget will reduce our structural deficit by 1.2 billion dollars from its level last month.

Those savings will plug the gap left by expired COVID funding.

They'll help protect the fundamental opportunities that Trump is trying to gut.

They'll free us to invest in the future that New Jerseyans have asked us to build.

And they'll help create a government that delivers for the people it is meant to serve.

I've only been in office for a month and a half, and I know we have big things to do together.

And while this is the most fiscally responsible budget our state has seen in years, it's just the start.

We can't solve every problem overnight.

But with this budget, we've almost halved the structural deficit, avoided raising taxes, and fully funded pensions.

We've given notice that special interest giveaways are over and moved resources to help working people instead.

And this is the budget we can afford.

If there are things you think we need to add, come to me with places we can cut.

It's simple math.

Additions require subtractions.

At the same time, this budget does make us less vulnerable to Washington.

Less vulnerable to a president who puts himself above the country, enriching himself at everyone else's expense.

From his illegal cuts to Gateway, to his illegal tariffs, to his skyrocketing gas prices, whenever Donald Trump gets involved, costs go up, jobs get lost, and working people suffer.

But while his administration is demonstrating just how much damage a poorly run government can do, we will prove how much strong state leadership can transform lives.

That's what we're building together.

I know these changes aren't easy, but that's what public service is all about.

I was taught in the Navy that leaders have a responsibility not just to tell people what to do, but to listen.

To think not of themselves, but of the mission.

They call it servant leadership.

And I see it around this room.

In all of you.

Who've served the state with honor, sometimes for a lifetime.

Sacrificing time with your families.

Putting your communities first.

I see it in your leadership.

Speaker Coughlin, President Scutari, and your commitment to this institution, its members, and our work together to make this the session where our state finds sure footing.

I see it in the members of the Budget Committee who will be staying here for the coming months of hearings and hard work until we see this through.

Thank you.

I see it in my Republican friends.

I've worked with many of you when I was in Congress, and I know there are plenty of things we all agree on.

And I see it in the military veterans and the Gold Star mom here in this room today.

I see it in all of you.

People who've stepped up throughout your lives, ready to do hard things together for the good of this country and the good of our state.

Today, reality is forcing us to change not just the way we do our budget, but how we approach our work.

It's asking us to make hard choices for the sake of a better future.

But one of the best things about New Jersey is that when we are called to it, there is no challenge we have backed away from.

I'm in this with you for the long haul.

Sometimes there's a mentality that says, you know, why do you care?

You won't be here in 10 years.

Maybe it's because when you have kids, you have a longer time horizon.

The whole reason I'm standing here, submitting this budget, even serving in this office, is because of my four kids.

The decisions we make now, the foundations this budget builds, will have an impact for decades long after all of us have left the statehouse.

It means doing things differently.

But it's worth it.

Because it's worth building the kind of government that really does make New Jersey, as Tracy's dad said, the land of opportunity for generations to come.

This is an affordability budget.

Rooted in fairness for hardworking families.

It answers first to people around their kitchen tables, not in the boardroom or the backroom.

It lays the groundwork to expand opportunity and tackle even harder problems in the years ahead.

I want to build a future where working families can afford to live here and thrive here.

Where the world's brightest minds can innovate and build here.

Where government delivers for the people and businesses it's meant to serve.

In life, you rarely get to choose your mission.

You rise to it.

This is our mission.

This is what we're building.

This is the time to do it.

So thank you all so much.

God bless the great state of New Jersey.

God bless the United States of America.

Thank you.

Earlier I spoke with Senate Republican Budget Officer Senator Declan O'Scanlan to get the GOP's response to Governor Sherrill's budget address and all that she's laid out as her priorities.

Here's that conversation.

Senator would love to hear what the GOP has to say in response.

What do you make of the governor's statements today.

Well look, I like what I hear rhetorically.

I'm not thrilled by what I see on paper though yet.

The governor's words today and over the last couple of weeks have fully vindicated Republican contentions about the dismal shape that the Murphy administration has left us in.

And I appreciate that.

I also like her rhetoric about streamlining pension, streamlining permitting, etc.

But what we see on paper, this is going to be the largest budget in history.

We talk about affordability, making New Jersey's budgets and government taking more money isn't a way to make things more affordable.

This budget is going up by almost $2 billion.

And much of it is going to be tax relief.

And the biggest challenge of the solution so far that we've seen are tax increases on businesses, reducing property tax relief to the tune, again, of almost $2 billion.

So it's not matching up.

There's a lot of work yet to be done here.

There has been no addressing of our dismal school funding formula.

She kind of extended Governor Murphy's rhetoric about fully funding what we all know is a deeply flawed, unsustainable, outrageously expensive school funding formula that leaves hundreds of our school districts choking on fumes.

There's a lot of work to be done here.

We look forward to doing that work, but we're going to be here to call out when we see things that aren't happening and happy to praise when she's doing the right thing as well.

>> Senator, let me ask you this.

Do you think that she's set up a budget where legislators are going to be willing to work together, where you see a space where Republicans and Democrats can come together?

>> We've always been ready to work together.

>> I think we've been very prepared.

We've been very prepared.

But we've been dead right.

And it's about time the realization that we're the ones that we're talking about hits the policy makers and the folks we're going to work with in the executive branch.

I do have to say, I spoke with a batch of Governor Sherrill's team members today.

There seems to be real interest in that dialogue and in that partnership.

And we absolutely look forward to joining them in fixing New Jersey finally, hopefully, with both sides coming together.

Do you think the governor went far enough in terms of the cuts that she made?

There is still a $1.6 billion deficit.

Do you think that a budget needs to be presented that is -- that closes that gap?

Or do you understand the pressures that she's facing that got us to where we are right now with what she's presented?

How about both?

They had just a very few short months, really weeks, to come up with a budget.

The real proof will be in the next few months of us working together and the budget that's really enacted.

So I give them a little slack that this was a -- they had to come to the table here with something very quickly.

Totally give them credit there.

But unless the budget improves dramatically between now and the end of June, it's kicking the can down the road.

Hopefully, the rhetoric that we hear and the team members, what they're saying really is what they mean.

And we'll be able to fix this, improve it, and pass something that can get Republican support.

But we're not going to support something that doesn't do those things, to be fair.

Do you intend to support the legislation that the governor's proposed?

Two things here I want to ask you about.

To scale back PBMs and their ability to impact the drug market, let's start there.

There's real work to be done as far as managing our overall health benefits system.

And PBMs are part of it.

Things that we enacted years ago that were supposed to control costs that aren't, and I personally experienced it.

Some of these drug prices are insane.

I recently had a personal experience where there was a drug needed for a family member and it was going to cost $1,800.

On Mark Cuban's website, I think we got three times the amount for like $20.

It's crazy.

There is room for improvement, dramatic improvement there.

So I look forward to working with them on that.

>> And she called out the big tech companies as well in terms of their impact on young people and social media.

She did mention how they are addicting adults as well.

Would you work on legislation with the governor's office and if the members of the legislature on the democratic side intend to take that up to, as she said, hold their feet to the fire?

>> I stand cautiously optimistic there.

I do realize that we see it in our own kids.

Their lives are completely different than ours.

Social media is really disruptive.

How do you go about controlling that while still getting the benefits from it and maybe having less harm for our kids?

I am interested in those solutions once we see the details.

We'll see if we can't come together on something that's workable.

All right.

Senate Republican Budget Officer Declan O'Scanlan, thank you so much for being with us.

Really appreciate it.

>> To dig deeper into what we Heard from governor Sherrill, I'm joined by our panel, Colleen o'day, nj spotlight news Senior writer and micah Rasmussen, director of the Rebovich institute for new Jersey politics at rider University.

It's great to have you both Here.

We heard a whole lot from the Governor and yet at the same Time, not a whole lot.

Right?

Colleen, as you pointed out, not A whole lot new, just maybe a Restructuring and rebalancing of Just maybe a restructuring and rebalancing of what exists on the budget right now kind of break down those high level pressure points that she's still going to be funding.

Yeah.

You know, so we I think we're used to some of the Governor Murphy budgets during covid time when we had a lot of federal money coming in and there could be lots and lots of new programs that were introduced.

We really didn't hear that.

We heard a lot of we're going to continue to fund this.

We're going to increase funding to this.

I mean, a couple of new programs that she introduced that really did get a lot of applause.

One is a Veterans Homelessness Fund to essentially try to get every veteran in the state who's homeless into into a home.

And the other one is this Office of Youth Mental Health and Safety and Awareness to try to just increase safety for kids online where we know there have been so many problems.

She went through a whole number of instances of student suicides from people who were bullied.

So it's really a very tough problem.

And that was another program that seemed very -- the audience was very receptive of.

>> She said that this country has failed our kids in keeping them safe online.

And that moment where she did announce the veterans homelessness program, she wants to end that, of course, across the state.

It was one of the few, I think one of two moments where there was a standing ovation from both parties.

Not a whole lot of applause in this speech compared to what we've seen from Governor Murphy.

So she's teed herself up for a fight with the legislature.

One of those fights will likely be over property tax relief programs that she is shifting.

What can you tell us, Micah, in terms of what's going to change with Anchor, with Stay NJ, and Senior Freeze is in the mix as well.

Absolutely.

So there are reductions to all three programs in terms of the amount that we spend.

About half a billion dollars of the reduction will come from Stay NJ.

It will come from reducing the eligibility.

People were, seniors were getting that up to $500,000 of income.

They were getting that half price reduction on their property taxes.

That will go down to $250,000 will be the new income limit going forward.

She's got about $100 million coming out of senior freeze.

And she's got just a little bit, it looks like just a hair coming out of anchor.

And that might come from some redundancies with the stay NJ program.

But the bottom line is these are very popular programs with seniors.

They're very popular with the legislature and Speaker Coughlin who introduced them.

And so she is teeing up for a fight, as you said, with the legislature.

They're coming back for re-election next year.

She's not.

And people are going to be looking for those checks that are really popular.

And so we'll see what happens to those going forward.

And listen, let's not ignore the fact that when people get checks in the mail, right, they're going to thank their elected officials.

And so these are popular programs for elected officials as well because they help win reelections.

Colleen, schools and school funding is something that she talked about high level, a big focus, as you said, on young people, but really looking at mental health programs and then looking at early education.

She did not talk about how she would change or make any changes at all to the school funding formula.

But what did she lay out in terms of pre-K, in terms of tutoring, high impact tutoring?

Right.

She's, it's the highest, it's a record amount for pre-K education.

There's more money for this high impact tutoring, which she pointed out seems to have made a difference in a number of districts.

Significant difference, right?

Getting kids back up to where they were before COVID came in and just kind of broke the system.

And there's about three, a little bit more than 3% more for education in general, about $12.4 billion.

What's not changed yet though is the funding formula.

So we're expecting to see probably still some more districts that are going to be losing money and there are some districts that will be gaining a lot.

So the formula, I think legislators on both sides of the aisle think is broken and that's something that's gonna have to wait for another day though because the aid numbers are probably gonna be coming out later this week.

Yes and the formula is based on need right and it takes a per pupil analysis of what each student needs based on being an English language learner, their special education costs factored into how districts receive aid as well.

All of it complicated and hard to explain in a quick two minute wrap up.

But we do see that this governor is prioritizing pensions once again.

Probably not a surprise at this point, right Micah?

No, I think she wants to continue that momentum that was set under Governor Murphy.

We've got to pay that down.

And even though it's a big part of the budget, it's $7 billion that has to go into paying those pensions.

If we don't do it, we realize we let up the gas for even a minute, we blow a big hole in the pension again, in our obligations again.

Can we take a look at the big picture numbers?

She laid out a $60.7 billion budget.

That's a record budget.

It increases up from 58.78 as Governor Murphy's last budget.

She calls it the most fiscally responsible budget that the state's seen in years, but there is still a deficit.

What are we looking at in terms of the deficit?

Yeah, so before the budget, she talked about a $3 billion structural deficit or hole in the budget, a difference between what we're taking in and what we were spending.

And she has cut that in half with this budget proposal.

She is proposing to bring us down to just a billion and a half difference between what we spend and what we take in.

Step in the right direction.

She's saying she can't get us all the way there in year one.

This is something that will be a continuing process going forward.

Just looking at the math, we were at a $3 billion deficit, only $7 billion surplus that left us two years before that surplus was gone.

She's now shrunk at about 1.6, surplus 5.4.

Do the math, that gives us three and a half years.

Is that a whole lot of breathing room, Colleen?

I mean, it really isn't, but any breathing room certainly is something that you would welcome.

And who knows what happens in the meantime?

Maybe there's a great uptick in the economy.

And so that would further increase revenues.

We haven't really talked about that, but the state seems to be saying that the revenue projections are on track or just maybe a teeny bit better for the most part, for example, in the income tax.

So any change that might happen certainly is something that you might want to wait a little bit for, right, to make those tough decisions.

It's funny when governors present these, oftentimes you kind of have to weed through to understand what's being said.

And she said that she was going to reduce transfers out of the Affordable Housing Trust Fund by 70 million.

Leaves us all figuring out what does that mean?

Colleen, what does that mean?

As far as I can tell, that means there still will be a transfer.

Could be as little as 10 million, it could be more than that.

In other words, money coming out of a fund that's meant for affordable housing?

Right.

The fund is supposed to be used for the construction of affordable homes.

And so not all that money is going to go for that next year.

She did.

She said definitely 30 million will go for that purpose.

But she wants to put some of the money from that fund into down payment assistance for lower income folks.

Some other programs typically are funded through that.

So I guess what we need to see is how much money that comes from realty transfer fees, which is the amount of money that folks pay when you buy a house.

So how much money goes into the fund, how much she's taking out, it's still a moving target.

$25 million for rapid rehousing programs for homeless individuals comes out of that.

And then, of course, $11 million -- and I should say that is because of a loss of federal funding, as she's outlined.

And then $11 million for that Bringing Veterans Home, that initiative that you mentioned earlier.

Micah, she's got a whole lot to deal with in terms of other federal cuts, Medicaid chief among them, SNAP benefits as well.

She's padded her budget in expectation of some of those cuts.

What do we see in terms of how the state will carry those costs?

Well, we definitely have to absorb a lot of those blows, whether it is the Medicaid funding or the SNAP funding.

And I think, look, you know, when we take a step back and remember the things that she campaigned on, she campaigned on bridging the gap for the holes that Trump was leaving in the budget.

She campaigned on the social media or the mental health of the teen.

She campaigned on the high impact tutoring.

And most importantly, most notably, she campaigned on no new taxes.

And so the fact that she has now presented a blueprint that she represents to her, keeping the faith, the things that she talked about, and is certainly making her bones on this and on resisting Trump, standing up to Trump, certainly, I think, represents that she is doing what she said she was going to do.

Colleen, just quickly on that youth mental health piece, she is investing $33 million for youth mental health initiatives.

She's making some changes to how the state has supported mental health services for students.

She wants to move to something called SPARC, the New Jersey Statewide School-Based Partnerships for Access and Resilience for Kids.

You've got to love the acronyms.

But that includes $500,000 for a social media research center.

She does want to, as she says, hold big tech accountable for the harms they've caused to New Jersey children.

What can you tell us in terms of how this legislature is going to be likely to work with her on that youth mental health piece?

Because, again, one area where we saw some applause.

Yeah, I mean, I would think when we see the applause, when we see in particular the two leaders sitting behind her, the Assembly Speaker and the Senate President, applauding, smiling, you think, well, that's something that you know is gonna go through.

They were not doing so for some other programs.

For instance, when she talked about cutting stay-and-Jay, when she talked about no more Christmas tree items, that's something I think there's gonna be more of a fight about when we get to June.

She wants to change the process so there are no more add-ons at the end of the budgeting process, something that's added a billion dollars sometimes to what's already a hefty budget.

I want to thank you both, Colleen O'Day and Michael Rasmussen.

Thank you both so much for your insights.

That is going to do it for us tonight.

I'm Joanna Gaggis.

For the entire team here at NJ Spotlight News, thanks for being with us.

We will see you right back here tomorrow.

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