With federal funding at risk, calls grow for state to prep for ‘bumpy times’

As Gov. Phil Murphy prepares his new budget proposal, advocates hope he’ll keep looming federal funding cuts in mind. (Dana DiFilippo | New Jersey Monitor)

With President Donald Trump’s administration setting its sights daily on new ways to cut federal spending, panicked policymakers and advocates anticipate a tumultuous budget season in New Jersey, where Gov. Phil Murphy is set to unveil his next budget proposal later this month.

More than $27.5 billion in federal funds flow through the current state budget, with billions sent directly to some state institutions and authorities like NJ Transit and state colleges and universities.

The funding pays for everything from highway and truck safety to mental health programs in schools to military training and operations to food inspections.

Whether New Jersey can continue to rely on those federal funds, though, remains a mystery. Trump last month ordered a freeze on federal grants and loans, triggering widespread confusion among governments and a lawsuit brought by 22 states.

Some observers hope the state will work to ensure services and programs don’t stop if federal funding shrinks or ends.

Peter Chen is a senior policy analyst with New Jersey Policy Perspective, a progressive think tank. Any federal funding cuts will impact states, but the constantly shifting orders coming out of Washington, D.C., have created a “dysfunction and chaos” that make it tough for states to deduce what that impact will be and respond, Chen said.

“All these federal cuts (are) ultimately going to come back and bite states,” he said. “Broadly speaking, federal dollars make up roughly a third of the dollars that the state spends now. Most of that is Medicaid, but many departments are heavily dependent on federal aid.”

But the state budget can’t wait on the feds to sort things out, a spokeswoman for Gov. Phil Murphy said. After he releases his proposal later this month, several months of budget hearings will follow, and the Legislature must approve a budget by the end of June for the fiscal year that begins July 1.

“The Governor is hopeful that Republicans in Congress will not cut critical social services and infrastructure programs to provide tax cuts for the wealthy. It is likely that Congress will not enact new spending legislation before the Governor must finalize his budget proposal this month,” spokeswoman Stella Porter said.

The list of things in New Jersey funded by the federal government stretches over seven, single-spaced pages in the current budget. It includes:

• Housing, utility, and food assistance for low-income residents.
• Technology upgrades and tactical gear in prisons, as well as reentry services for people leaving prisons.
• Pollution reduction and contamination cleanups; animal conservation and research; wildfire defense; and historic preservation.
• Morbidity and public health research; drug and overdose research and prevention.
• Mental, maternal, and newborn health screening and services; immunization; and rape and disease prevention.

Federal funding also covers the cost of climate resiliency work in New Jersey. That drove the New Jersey League of Conservation Voters to send Murphy a letter recommending he allocate $10 million in his upcoming budget to protect the state from flooding, extreme weather, and other problems associated with climate change.

“We understand the necessity of maintaining fiscal responsibility and making difficult decisions during times of budget constraints, but our ability to respond to climate disasters has direct impacts on New Jersey’s economy, environment, and public health — and indeed the lives of our residents,” wrote Ed Potosnak, the league’s executive director.

Chen said the best defense against federal funding cuts is building the state’s surplus, which is now at about $6 billion, to serve as a cushion to cover whatever ultimately gets cut.

“We’re running a structural deficit. We are burning through the surplus,” Chen said. “A $6 billion surplus gives us like 40 days of funding for state government. Even short-term disruptions could be a huge problem for the state, so beefing up the surplus is the obvious step, because you don’t know where you might need to spend money.”

To do that, Murphy could reduce the scope of major programs like Stay NJ, a new tax credit program intended to halve property tax bills for residents 65 and older, Chen said. That program — which Chen’s group has criticized, saying it disproportionately benefits the state’s wealthiest homeowners — is set to start in 2026 and is expected to cost the state $1.2 billion a year.

Legislators also could give up the non-essential spending — so-called “Christmas tree” items — they like to sneak into the budget at the last minute, Chen added. Such spending topped $600 million last year.

“There may be really bumpy times ahead and having that sort of rainy-day fund as full as possible will likely be helpful,” he said.