New Jersey’s Fiscal Balancing Act: Can the State Sustain Its Commitments?

New Jersey has billions in reserves and a better credit rating—but beneath the surface are structural deficits, underfunded pensions, rising debt and institutions facing their own financial pressures.

The Budget Looks Better—But the Structural Problem Remains

New Jersey’s fiscal condition presents a paradox.

On one hand, the state is in considerably better financial shape than it was several years ago. The state has rebuilt its reserves, made several consecutive full pension payments and received significant upgrades from the major credit-rating agencies.

On the other hand, New Jersey continues to carry enormous long-term obligations. Its public pension systems remain substantially underfunded, the state still has a structural budget imbalance, transportation authorities carry billions of dollars of debt, and even one of the state’s flagship public universities has faced operating-budget pressures.

The question for taxpayers and retirees is not simply whether New Jersey can balance its budget this year.

The bigger question is: Can New Jersey continue making all of its promises without eventually requiring substantially higher taxes, reduced services, higher tolls and tuition, or some combination of all three?

New Jersey’s fiscal year 2027 budget totals approximately $60.7 billion and contains a projected surplus of about $6.1 billion.

That sounds reassuring—and it is.

But the budget also contains a $1.35 billion structural deficit. In other words, recurring revenues are not sufficient to cover recurring expenditures without relying on adjustments, reserves, new revenues, spending reductions or other budgetary solutions.

The distinction between a surplus and a structural surplus is critical.

A household could have $100,000 sitting in a savings account while simultaneously spending $10,000 more than it earns every year. The household isn’t broke today—but its financial condition is deteriorating unless the annual imbalance is corrected.

New Jersey faces a similar problem.

The state’s current surplus provides an important financial cushion, but a surplus does not eliminate the underlying structural imbalance. The FY2027 budget reduced the structural deficit from more than $3 billion to $1.35 billion, according to the state. [1]

The Pension Problem: The Number That Should Get Every Taxpayer’s Attention

Perhaps the biggest long-term fiscal challenge is New Jersey’s public pension system.

New Jersey administers several major pension systems, including the Public Employees’ Retirement System (PERS) and the Teachers’ Pension and Annuity Fund (TPAF).

The state has made a significant change in recent years by actually making its required pension contributions. The FY2027 budget includes another $7.3 billion pension payment. That is a major improvement over the state’s historical practice of making inadequate contributions. [2]

But making the annual payment does not mean the pension systems are fully funded. Far from it.

Public Employees’ Retirement System

As of the July 1, 2025 actuarial valuation, PERS had approximately:
• $30.25 billion in actuarial liabilities
• $13.85 billion in actuarial assets
• Approximately $16.4 billion in unfunded actuarial liability
• A funded ratio of approximately 45.8% under the state’s statutory actuarial methodology

Using market value of assets, the funded ratio was approximately 37%. [3]

Teachers’ Pension and Annuity Fund

The teachers’ pension system is even larger.

The July 1, 2025 actuarial valuation reported:
• Approximately $76.5 billion of actuarial liabilities
• Approximately $46.6 billion of actuarial assets under the statutory calculation
• Approximately $29.9 billion of unfunded actuarial liability
• A funded ratio of approximately 60.9%

Using market-value assets, the funded ratio was approximately 49.6%. [4]

Put another way, the system does not currently have enough assets to cover the actuarially calculated benefits already earned by participants.

Combined with PERS and the other state pension systems, the problem becomes much larger.

New Jersey’s 2025 statutory funding report shows unfunded actuarial liabilities of approximately:

PERS — $16.4 billion — 45.8% funded
TPAF — $29.9 billion — 60.9% funded
Police & Fire (PFRS) — $3.9 billion — 42.4% funded
State Police (SPRS) — $1.9 billion — 58.3% funded
Judicial (JRS) — $0.6 billion — 38.0% funded

These figures illustrate an important point: New Jersey has improved pension funding dramatically, but the pension problem has not been solved. [5]

The Pension Payment Is Now a Major Budget Expense

New Jersey’s decision to make full pension contributions is fiscally responsible—but it also creates a significant recurring expense.

The state estimates that its FY2027 pension payment will be approximately $7.3 billion.

That money has to come from somewhere.

Every dollar directed toward pension obligations is a dollar that cannot simultaneously be spent on schools, transportation, health care, property-tax relief or other programs.

This is the uncomfortable part of the pension equation.

The state cannot simply stop making pension contributions without increasing the future liability. But continuing to make full contributions requires a substantial commitment of today’s tax dollars.

That is why pension funding is both a short-term budget expense and a long-term fiscal necessity.

New Jersey’s Credit Rating Has Improved—but It Is Not a AAA State

There is some genuinely good news in New Jersey’s credit picture.

The state has received multiple credit-rating upgrades in recent years.

As of 2026, New Jersey’s general-obligation ratings include:
• Moody’s: Aa3, Stable
• S&P Global Ratings: A+, Stable
• Fitch Ratings: A+, Stable

Moody’s upgraded New Jersey to Aa3 in September 2025, citing stronger reserves, revenue growth and the state’s commitment to pension funding. S&P upgraded the state to A+ in August 2025. [6][7]

That is a substantial improvement from the state’s earlier credit history.

But there is another way to look at it.

New Jersey still does not have a AAA rating from the major agencies.

The credit markets therefore recognize both sides of the equation: New Jersey has improved its fiscal management, but it continues to carry significant long-term liabilities.

A better credit rating lowers borrowing costs and gives the state greater financial flexibility.

It does not eliminate the underlying liabilities.

The Debt Problem Is Bigger Than General-Obligation Bonds

When people hear that New Jersey has billions of dollars of debt, they often look only at the state’s general-obligation bonds.

That doesn’t tell the entire story.

As of June 30, 2025, New Jersey had approximately $3.4 billion of general-obligation bonds outstanding. [8]

But the state’s financial obligations also include various appropriation-backed obligations, leases, loans, pension liabilities and debt issued by independent authorities.

The state’s FY2025 debt report, for example, reported approximately $77.5 billion in net pension liability under governmental activities. [9]

This is why looking only at the state’s traditional bonded debt can create a misleading impression of New Jersey’s total financial obligations.

The Turnpike and Garden State Parkway: Not a Deficit, But a Massive Debt Load

Another area that deserves attention is the New Jersey Turnpike Authority, which operates the New Jersey Turnpike and Garden State Parkway.

It is important to distinguish between debt and a deficit.

The Turnpike Authority is not currently running an operating deficit in the traditional sense. It generates substantial toll revenue and has historically maintained sufficient revenue to meet its debt obligations. But it carries a very large amount of debt.

As of October 31, 2025, the Authority had approximately $11.8 billion in bonds outstanding.

Its 2026 budget calls for approximately $1.07 billion in total debt service, including about $965 million of net debt service funded from revenues. [10]

The Authority’s finances remain viable because the Turnpike and Parkway generate significant toll revenue. The 2026 budget assumes approximately $2.76 billion in total revenue and nearly $1.95 billion in net revenue after operating expenses. [11]

The Authority also has ambitious capital plans.

Its 2026 budget contemplates approximately $2.7 billion of capital spending, funded through a combination of bonds and revenues. [12]

That means New Jersey’s transportation infrastructure is increasingly dependent upon a familiar formula:

Tolls → revenue → debt service → additional borrowing for capital projects.

That model can be sustainable if toll revenue continues to grow faster than expenses and debt-service requirements.

But it also means motorists are effectively financing a large portion of the state’s transportation infrastructure through increasingly important toll payments.

Rutgers University Has Its Own Financial Challenges

Rutgers University presents another example of the financial pressures facing major New Jersey institutions.

Rutgers operates a massive, complex organization with a budget of approximately $6.2 billion for fiscal year 2026–27. Its revenues come from numerous sources, including tuition, state support, health-care operations, research funding and other activities. [13]

Rutgers’ FY2026 budget illustrates the pressure.

The university’s New Brunswick units, for example, had an operating deficit after transfers of approximately $89 million in the FY2026 budget before other transfers. After the use of prior-year net assets and other transfers, the reported result was a positive $234 million. [14]

That distinction is important.

Rutgers is not equivalent to a municipality or state government that simply runs out of money. It has an enormous balance sheet, multiple revenue sources, a substantial investment pool and access to state support.

Nevertheless, the university faces the same basic problem affecting many large institutions:

Costs are rising faster than some traditional sources of revenue.

Rutgers says its FY2027 budget is balanced, but it is also dealing with enrollment challenges, uncertainty surrounding federal research funding and rising salaries, benefits, utilities, technology and other operating costs. [15]

That makes Rutgers another piece of the larger New Jersey fiscal puzzle.

The Real Question: Is This Sustainable?

The answer is: It is sustainable for now—but the current trajectory is not something New Jersey can ignore.

There is an important difference between solvency today and sustainability over the next 20 or 30 years.

New Jersey is not on the verge of suddenly becoming unable to pay its bills.

The state has:
• A large economy
• A substantial tax base
• Significant reserves
• Improved credit ratings
• Strong toll revenues
• A growing commitment to pension funding
• Major public institutions with multiple revenue sources

Those are significant strengths.

But the state also has:
• A recurring structural deficit
• More than $50 billion of unfunded actuarial liability across major state pension systems
• Tens of billions of dollars of broader net pension liabilities
• Billions of dollars of transportation authority debt
• Rising health-care and education costs
• High taxes already compared with many competing states
• Dependence on strong investment returns to help close pension funding gaps
• A population and economic environment in which high-income taxpayers are particularly important to state revenue collections

That combination leaves little room for complacency.

What Happens If the Market Has a Major Downturn?

This may be the most important question.

New Jersey’s pension systems depend heavily on investment returns.

The 2025 TPAF actuarial valuation, for example, reported a 11.19% return on market-value assets during the valuation year. That was significantly above the assumed long-term return. [4]

Strong investment markets can dramatically improve pension funding.

But the reverse is also true.

A prolonged bear market could:
1. Reduce pension assets.
2. Increase unfunded liabilities.
3. Increase required future contributions.
4. Put additional pressure on the state budget.
5. Force difficult decisions about spending and taxes.

This is why a pension system can look significantly healthier after a strong stock market without the underlying structural problem necessarily disappearing.

What Is the Solution?

There is no single solution.

New Jersey’s fiscal problem is too large and too complicated for another tax increase or another spending cut to solve by itself.

A sustainable solution would probably require several changes.

1. Maintain Full Pension Contributions

The state should continue making its full actuarially required pension contribution.

Skipping payments simply transfers today’s budget problem to tomorrow’s taxpayers—with interest.

The recent improvement in pension funding demonstrates that consistent contributions can make a difference.

2. Attack the Structural Deficit

New Jersey should establish a multi-year goal of eliminating the structural deficit.

A budget should not merely balance because of a temporary surplus.

Recurring expenses should be supported by recurring revenues.

That is the fundamental principle of sustainable government finance.

3. Control the Growth of Government

The objective should not necessarily be to eliminate government programs.

Instead, New Jersey should examine whether programs are producing measurable results and whether services can be delivered more efficiently.

Technology, procurement reform, consolidation and elimination of duplicative programs could reduce expenses without simply cutting essential services.

4. Address Pension Costs Honestly

New Jersey cannot undo pension promises already earned.

But it can examine future benefit structures for new employees, retirement ages, employee contributions and other long-term factors.

Any reform must recognize the constitutional and legal protections surrounding existing pension benefits.

The objective should be to prevent today’s problem from becoming tomorrow’s problem.

5. Be Careful With Borrowing

Debt can be appropriate when it finances infrastructure that provides long-term economic value.

But borrowing to fund recurring operating expenses is fundamentally different.

New Jersey should distinguish between productive debt and debt used to postpone difficult budget decisions.

6. Grow the Tax Base Instead of Constantly Raising Tax Rates

New Jersey has one enormous potential fiscal asset: economic growth.

More businesses, more jobs, more investment and more residents with high incomes create a larger tax base.

That is preferable to repeatedly increasing tax rates on an existing group of taxpayers.

New Jersey should make itself more attractive to businesses and residents who have alternatives.

The Bottom Line for New Jersey Taxpayers

New Jersey’s fiscal situation is neither a financial disaster nor a clean bill of health.

It is somewhere in between.

The state has made meaningful progress.

The surplus is real.

The improved credit ratings are real.

The pension payments are real.

And the state’s financial position is stronger than it was a decade ago.

But the liabilities are real too.

A $1.35 billion structural deficit means the state still has a recurring mismatch between revenues and expenditures.

The pension systems remain significantly underfunded.

The Turnpike Authority has nearly $12 billion of outstanding bonds.

Rutgers faces continuing pressure to balance rising costs against tuition, state support, research funding and other revenues.

And the state’s improved credit rating should not be confused with financial perfection.

The warning for New Jersey may not be that the state is about to run out of money.

The warning is more subtle:

New Jersey has bought itself time. The question is whether it will use that time to fix the underlying structural problems.

For taxpayers—and particularly for people planning a retirement in New Jersey—that distinction matters.

Because ultimately, government debt and pension obligations do not disappear.

They are paid for by future taxpayers, future revenues, future tolls, future tuition—and, in many cases, future retirees.

The state has an opportunity today to put its finances on a genuinely sustainable path.

The longer it waits, the more expensive that solution becomes.

Footnotes and Sources

1. New Jersey Department of the Treasury, FY2027 Appropriations Act. The FY2027 budget totals approximately $60.7 billion, with a reported $6.084 billion surplus and $1.35 billion structural deficit.
2. New Jersey Department of the Treasury, FY2027 budget information. The FY2027 budget includes a $7.3 billion pension payment.
3. New Jersey Department of the Treasury, Public Employees’ Retirement System July 1, 2025 Actuarial Valuation. PERS reported a 45.8% funded ratio using the actuarial value of assets plus special asset value, with approximately $16.4 billion in unfunded actuarial liability. Market-value funding was approximately 37%.
4. New Jersey Department of the Treasury, Teachers’ Pension and Annuity Fund July 1, 2025 Actuarial Valuation. TPAF reported approximately $29.9 billion of unfunded actuarial liability and a 60.9% funded ratio using actuarial assets plus special asset value. Market-value funding was approximately 49.6%.
5. New Jersey Department of the Treasury, Statutory Funding Status, July 1, 2025. The report provides the comparative funded ratios and unfunded liabilities for the state’s major pension systems.
6. Moody’s Investors Service/New Jersey Department of the Treasury. Moody’s upgraded New Jersey’s general-obligation rating to Aa3 from A1 in September 2025 and assigned a stable outlook.
7. S&P Global Ratings/New Jersey Department of the Treasury. S&P upgraded New Jersey’s general-obligation rating to A+ from A in August 2025.
8. New Jersey FY2025 Debt Report. As of June 30, 2025, New Jersey had approximately $3.4 billion in state general-obligation bonds outstanding.
9. New Jersey FY2025 Debt Report. The state’s governmental activities reported approximately $77.46 billion in net pension liability as of June 30, 2025.
10. New Jersey Turnpike Authority, 2026 Annual Budget. The Authority reported approximately $11.8 billion in bonds outstanding as of October 31, 2025, with approximately $1.07 billion budgeted for total debt service in 2026.
11. New Jersey Turnpike Authority, 2026 Annual Budget and financial reports. The Authority’s 2026 budget projects approximately $2.763 billion in total revenue and $1.95 billion in net revenue after operating expenses.
12. New Jersey Turnpike Authority, 2026 Annual Budget. The Authority anticipates approximately $2.7 billion of capital spending under its capital program.
13. Rutgers University, FY2027 Budget Facts. Rutgers reports a $6.2 billion budget for the 2026–27 academic year.
14. Rutgers University, FY2026 Annual Budget. The FY2026 budget for New Brunswick units showed an $89 million deficit after transfers before other transfers and use of prior-year net assets.
15. Rutgers University, FY2027 Budget. Rutgers reports that its FY2027 budget is balanced while facing uncertainty surrounding federal funding, enrollment and rising operating costs.