Gov. Philip D. Murphy of New Jersey proposed a $58 billion budget on Tuesday that would keep spending roughly flat as the state braces for potentially drastic reductions in federal funding, including Medicaid.
State officials acknowledged that drafting the final budget of Mr. Murphy’s second term had proved challenging amid uncertainty in Washington, where Republicans are mulling deep cuts in spending on health care for low-income people to help pay for $4.5 trillion in tax cuts.
New Jersey estimates it could lose as much as $5.2 billion in Medicaid matching funds that help provide health coverage to roughly 700,000 residents.
“There are some draconian cuts that might be presented,” the state’s treasurer, Elizabeth Maher Muoio, said.
“That is the real game changer that we all have to be aware of,” she added.
New Jersey, she noted, is not the only state grappling with such uncertainty.
Last week, the bipartisan National Conference of State Legislatures warned that any dip in Medicaid funding could lead to devastating results, noting that roughly 79 million Americans depend on it for health care.
“Medicaid accounts for over half of all federal funds to states and is the largest source of federal funding for state budgets, making it essential to states’ ability to design and administer health care programs that meet the unique needs of their populations,” stated a letter from the conference and other organizations sent to Washington lawmakers.
The budget Mr. Murphy unveiled included $1.4 billion more than the one he approved for the current fiscal year, but $70 million less than what the state expected it would actually spend by July, after midyear adjustments.
Still, the budget blueprint, which will now be refined by the State Legislature before it is approved by July 1, required what officials described as difficult choices.
Months ago, all agencies were asked to trim spending by 5 percent and to limit new hiring.
The proposed spending plan sets aside $1 million to pay for as many as 10 additional lawyers who will focus on challenging Trump administration policies deemed harmful to New Jersey. But it also includes cuts to college affordability programs and only small increases in municipal aid. Taxes would be increased on sports betting and recreational activities like bowling and laser tag, as would fees on cigarettes, vaping items and drone purchases.
“While I sincerely hope that the situation in Washington settles down, and that we in turn have a normal, healthy budget season over the next few months, that is by no means a guarantee,” Mr. Murphy, a Democrat, told state lawmakers in a budget address in Trenton.
“There is a distinct possibility that we will, instead, need to pursue a ‘break the glass’ strategy,” he said. “What that looks like, we cannot yet say. But we must acknowledge, and adapt to, this new reality.”
New Jersey this year received about $28 billion from Washington, and roughly 15 percent of the state’s public work force is paid with federal funds. Officials have said there are also concerns about potential cuts in federal funding for New Jersey Transit, which raised bus and train fares by 15 percent in July and still faces a large deficit.
“If that money were to be cut, we would either have to make up the difference somehow with state dollars, or our residents would be essentially denied the services,” Ms. Muoio said.
“This is all a big question mark right now, but the numbers we’re hearing are sobering,” she said.
The governor’s proposed budget increases aid to schools and continues to fully fund New Jersey’s pension obligations for public employees while setting aside about $6.3 billion for a rainy day surplus fund for emergencies. It also includes promised funds for Stay NJ, an initiative approved last year to cut property taxes by as much as $6,500 a year for older homeowners.
Since taking office in 2018, Governor Murphy has prioritized efforts to pad the surplus and meet the state’s pension obligations, resulting in a series of improved credit score ratings. And Ms. Muoio recoiled at the suggestion that, in the face of cuts in Washington, New Jersey might scrimp on pensions to balance the budget — a tactic regularly used by prior administrations that had caused interest payments to balloon.
Had the pension payments been fully funded for the last 25 years, Mr. Murphy said costs would be about $1 billion a year. Instead, New Jersey spends $7 billion annually on its pension obligations.
“Over the past five budgets alone, we have paid, in total, a $30 billion penalty,” Mr. Murphy told lawmakers.
“That is $30 billion that should be going back into our hospitals, our schools, our public transit system,” he added. “But instead, we are literally paying the price for decades of short-term, sloppy and selfish decision-making.”
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