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 considering 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.
“This is all a big question mark right now, but the numbers we’re hearing are sobering,” she added.
New Jersey 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 have 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 is $1.4 billion greater than the one he approved for the current fiscal year, but $70 million less than what the state anticipates actually spending 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, and fees on cigarettes, alcohol, vaping items and drones would rise.
Mr. Murphy’s plan also envisions doubling the tax charged on the sale of property over $1 million, from 1 percent to 2 percent; the tax on homes sold for more than $2 million would increase from 1 percent to 3 percent.
“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 say.”
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.
Kris Kolluri, the new president of New Jersey Transit, said he was also concerned about potential cuts in federal funding for mass transit. His agency, one of the biggest statewide public-transit systems in the United States, raised bus and train fares by 15 percent in July yet still faces a large deficit.
“We’re all watching to see, because we certainly don’t have the bandwidth” to absorb cuts, Mr. Kolluri said after Mr. Murphy’s budget presentation.
“There is no Plan B.”
The governor’s proposed budget increases aid to schools and continues to fully fund New Jersey’s pension obligations 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.
“Year after year, our state’s leaders abandoned this obligation because, simply put, it was the easy way out,” Mr. Murphy told lawmakers during the joint session of the Legislature.
“We are literally paying the price for decades of short-term, sloppy and selfish decision-making,” he said.
New Jersey’s casino association, a powerful lobbying group, pushed back quickly and forcefully on the governor’s proposal to increase taxes on online gambling and sports betting, claiming it would threaten the stability of casinos in Atlantic City, N.J.
“This proposal is ill-advised and, if passed, will have significant adverse consequences for brick-and-mortar casinos,” Mark Giannantonio, president of the Casino Association of New Jersey, said in a statement.
In Washington, pressure was mounting on the three Republican members of New Jersey’s congressional delegation, Representatives Jeff Van Drew, Thomas Kean Jr. and Chris Smith. Like other Republicans, they were being asked by the House speaker and President Trump to support a budget resolution as early as Tuesday night that would be the first step in authorizing the president’s fiscal policies.
Representative Frank Pallone, a New Jersey Democrat, released a statement that included the number of residents in each of his Republican colleagues’ districts who rely on Medicaid for health care.
“We know these cuts would be devastating,” Mr. Pallone said. “But it only takes three Republicans to stop this bill in its tracks.
“It’s time to choose.”
