Murphy’s annual address kicks off months of negotiations with the Democratic-led Legislature that inevitably will lead to changes and late deal-making. Last year, for example, lawmakers added millions in pet projects to Murphy’s proposed $48.9 billion budget, bringing the total to $50.6 billion when he signed it in June.

With all 120 seats in the Legislature on the ballot in November — the first election since Democrats lost several seats in a surprisingly strong Republican cycle in 2021 — it wouldn’t be surprising to see another year of padded spending to arm incumbents with arguments for reelection.

And Democrats already have one perk to show off to voters: the ANCHOR property tax rebate checks hitting mailboxes this spring. That program, first launched last year, delivers up to $1,500 to about 1.5 million homeowners and renters in an attempt to soften the blow of the state’s nation-leading property taxes.

Murphy is proposing to continue that program for another year at a cost of $2 billion.

Murphy also wants to double the state’s child tax credit from $500 to $1,000 for each child younger than five years old. And for seniors, he wants to expand the Senior Freeze property tax reimbursement program to people with incomes up to $150,000. Last year, the income limit was $100,000.

Possible signs of a recession

The spending proposals may play well to voters in the fall, but it could also serve as a lifeline next year if the economy turns. Murphy has said he expects a “shallow, fairly short-lived recession,” and Treasury officials shared that view in a briefing with reporters before Murphy’s speech. They said the administration expects economic growth to slow to “a very low level” over the next few quarters, but there’s no consensus among themselves or economists what exactly to expect.

Already the administration has seen wage growth slow “significantly” this year, and income revenues are “stabilizing” after beating expectations coming out of the pandemic, a large factor in the state’s strong current finances.

“I don’t think we’ve seen anything that would indicate if there was a recession, it would be anything more than sort of a short-term or mild recession,” Treasurer Elizabeth Maher Muoio said.

Murphy has been planning for a downturn by building up the state’s surplus since he took office in 2018. This year, Murphy proposes bringing it to its highest level in at least a decade at $10 billion.

“This surplus — all $10 billion of it — is a signal to the credit rating agencies that we can pay our bills. That our foundation is strong,” he said. “And even more, it’s a signal to our taxpayers that we treat every one of their tax dollars with the same care that they do.”

Much of Murphy’s budget is a continuation of a long-term plan to improve the financial condition of a state that’s earned a reputation as one of the most unstable in the country. His budget makes another full pension payment for public employees, increases public education funding — both required by law — and adds nearly $2.4 billion to a relatively new fund that helps lower the state’s infamously high debt.

By the end of the current 2023 fiscal year in June, the administration said it will have decreased outstanding borrowing debt by $1.8 billion since last year, bringing it to its lowest level since 2010.

The state, in turn, has been rewarded by the three major ratings agencies with three credit upgrades in the last 14 months, a longtime goal of Murphy’s after a string of downgrades in the previous administration.

Seeking affordability

More than anything, though, Murphy and fellow Democrats have sharpened their focus on making New Jersey more affordable after bruising losses in the Legislature and other offices when Murphy ran for a second term in 2021 and narrowly won.

In addition to the ANCHOR program, Murphy and lawmakers have taken steps to ease some of the day-to-day financial pain of living in a high-cost, high-tax state with limited perks such as tax breaks on school supplies, doing away with fees for marriage licenses and making entry to state parks free. Murphy plans to once again lift the entry fee for state parks.

Republicans said Murphy’s budget fails to address the underlying causes of the state’s high property taxes and cost-of-living, such as rising health care costs and a salary cap for public employee contracts.

“It’s an election year budget for the Democrats, and it’s filled with a lot of gimmicks,” Assembly Budget Officer Hal Wirths (R-Sussex) said after the governor’s address. “Are there some good things in there to pay? Of course there is. But this is our money. We were overtaxed tremendously, up to $53 billion. So we need structural reform if we’re going to make a difference.”

Progressive organizations have a similar criticism.

They’ve decried Murphy’s decision to allow a tax hike on corporations he approved in his first budget to expire at the end of the year, a move the self-described “cold-blooded capitalist” said would create jobs and lower costs for consumers. A coalition of otherwise faithful Murphy supporters condemned the move this week, calling it a windfall to corporate behemoths that smacks of Republican trickle-down economics.

The left-leaning think tank New Jersey Policy Perspective estimated eliminating the corporate surcharge would cost the state at least $664 million in annual revenue, threatening its ability to pay for programs and services. But the state’s budget documents show a loss of up to “roughly $1 billion” in the 2025 fiscal year.

“That’s $1 billion for the most profitable businesses in the state every single year,” the group said on Twitter.

Environmentalists are also upset about the corporate tax, as well as Murphy’s other budgeting practices.

While Murphy has committed for the sixth straight year of holding the lines on NJ Transit fares, he’s done it in part by regularly taking money from the state’s Clean Energy Fund and transferring from the agency’s capital budget to its operating fund. That means fewer improvements and more failures, delays and cancelations for riders, the group Clean Water Action said.

“He promised to stop Clean Energy Fund raids, ‘fix NJ Transit if it kills him’ and end the Corporate Business Tax surcharge. Which promise does he keep?” said Amy Goldsmith, the group’s New Jersey director, in a statement.

“Only one, the one that gives money to the wealthiest corporations and takes money away from doing public good, mitigating climate change, making the state more affordable and enabling everyone to be part of a growing economy.”

Caroline Petrow-Cohen and Daniel Han contributed to this report.