Key Takeaways
- New Jersey municipalities face significant 2027 budget pressures, including rising health benefit costs, limited property tax revenue growth and the loss of temporary funding.
- Multi-year municipal budget forecasting helps identify structural deficits, manage recurring expenses and address property tax levy and appropriation cap restrictions.
- Deferred infrastructure maintenance and rising cybersecurity costs require coordinated capital planning, technology investment and long-term financial risk management.
Now is the time of year when municipal finance teams across New Jersey (NJ) begin moving from broad assumptions to serious drafts of next year’s budget. The process looks something like this: department heads start submitting requests; salary and health-benefit costs come into focus; levy- and appropriation-cap restrictions are reviewed; capital needs compete for attention. Governing bodies begin asking what can be sustained without placing additional pressure on taxpayers.
For 2027 budgets, those planning conversations are likely to be more difficult. Several simultaneous cost pressures are now converging. Many municipalities are also confronting the end of significant COVID-19 funding sources, along with years of deferred investment in municipal infrastructure and technology. In short, for most NJ municipalities, 2027 budget planning will begin with less room for error or kicking the can down the road.
The following five issues deserve particular attention as your NJ municipality begins shaping its 2027 budget, with early forecasting more critical than ever.
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1. Rising Health-Benefit Costs
Going into 2027, health benefits are not a routine inflation assumption for municipalities participating in the State Health Benefits Program Local Government Plan. The state’s 2026 draft rate-setting analysis projects a 17.3% total increase in active premiums for local governments. Factors include medical and prescription drug trends, declining plan membership, anti-selection and continued cost pressures from specialty drug utilization, such as glucagon-like peptide-1 (GLP-1). An increase of that magnitude can quickly consume budget capacity that might otherwise be available for salaries, public safety, equipment or capital needs — thus reshaping your entire budget.
What You Can Do Now: You should model health costs under multiple scenarios, rather than use a single percentage assumption. Your forecast should include active employees, retirees, anticipated staffing changes, employee contributions and the effect of any plan-design or coverage changes you may be considering. Taking the following additional actions will also help:
- Build a multi-year health benefit forecast rather than a one-year estimate
- Quantify the impact by employee group and coverage tier
- Review plan alternatives, contribution structures and labor implications early
- Avoid assuming that a large increase can simply be absorbed within ordinary levy growth
2. Disappearing One-Time Revenues (Temporary Money)
Over the past several years, one-time revenues gave many municipalities flexibility to address extraordinary needs, accelerate projects or preserve services. But as those resources are now disappearing, the key question is whether any recurring operating costs remain that were supported, directly or indirectly, by this temporary money That’s why structural balance is critical. The 2026 Transitional Aid guidance offered by The NJ Division of Local Government specifically warns against reliance on one-time resources without planning for the loss of that revenue. That principle applies well beyond municipalities seeking transitional aid.
What You Can Do Now: Use your 2027 budget process to separate recurring from nonrecurring revenues and identify any expense that has become part of the operating base without a permanent funding source. Reserves can provide stability, but routinely using fund balance to support ongoing expenditures can narrow future flexibility. Other actions to take now:
- Identify every material one-time revenue source used in recent budgets
- Match each temporary revenue to the expense it supported
- Distinguish strategic use of fund balance from structural reliance on reserves
- Develop a replacement, reduction, or phase out strategy for recurring costs lacking recurring revenue
3. Property-Tax Capacity Remaining Under Pressure
Growth for NJ municipalities is limited by levy- and appropriation-cap restrictions. Major expenditure categories, however, often grow at a quicker pace than the cap limits. Health benefits are the clearest example of this misalignment. But contractual salaries, pension costs, insurance, utilities and other operating expenses can also rise faster than a municipality’s revenue base. That mismatch can create a structural squeeze, even when a locality has otherwise healthy finances. A town may be balanced today yet find that its ability to raise recurring revenue lags the cost of maintaining its existing services. The challenge becomes more pronounced when ratable growth is modest or when new development requires additional services.
What You Can Do Now: Your budget planning should therefore go beyond understanding what your municipality spent last year to assessing the recurring cost of its current service model three years into the future. That includes understanding what recurring revenue will be required to support it. Long-range projections can reveal pressure points early enough in your financial-planning process to consider shared services, fee reviews, staffing changes, procurement strategies or other operational adjustments. Other do-nows:
- Prepare a three- to five-year operating forecast
- Model the tax levy impact of major contractual and benefit assumptions
- Update ratable growth and redevelopment assumptions conservatively
- Evaluate shared services and operational efficiencies before a gap becomes a crisis
4. Deferred Infrastructure Causing Budget Issues
When public assets fail (roads, drainage systems, municipal buildings, water infrastructure, town vehicles), they rarely do so on a convenient budget schedule. When maintenance or replacement is deferred, the eventual cost becomes a larger future obligation. Municipalities in NJ also face specific infrastructure demands. Under state law, community water systems are required to replace lead service lines by 2031. This comes at the same time when local governments are confronting stormwater flooding and roadway needs. The rising construction costs and complexity of such projects can make capital programs more expensive than current estimates suggest.
What You Can Do Now: Grant funding can reduce your local burden, but it should not substitute a coherent capital plan. New funding opportunities are most useful when you have already prioritized projects, developed realistic cost estimates and identified the local match or cash flow needs that may accompany an award. Your 2027 budget discussion should therefore connect your operating budget, capital budget, debt plan and asset management strategy. Understanding your five-year replacement needs can help your municipality make better decisions about borrowing, pay-as-you-go capital, reserves, grants and the timing of your projects. Other actions to consider:
- Refresh the multi-year capital improvement plan using current cost estimates
- Identify assets where deferred maintenance is creating higher future risk
- Map grant opportunities to projects before application windows open
- Coordinate debt service projections with the operating forecast
5. Cybersecurity and Technology Becoming Core Operating Costs
Municipal technology is no longer simply an administrative support function. Finance, payroll, tax collection, public safety and code enforcement all depend on systems that must remain available and secure. To delay maintaining or replacing your technology or underinvesting in cybersecurity are risks governments can’t afford to take.
What You Can Do Now: For 2027 planning, your municipality should expect recurring costs for security tools, software licensing, managed services, backups, employee training, hardware replacement, cyber insurance and modernization of aging systems. It would be dangerous to treat these needs as discretionary projects that can be deferred indefinitely. While keeping a legacy system may appear cheaper in the current budget, that decision may create larger exposure to downtime, data loss, vendor failure or a costly emergency replacement in the near future. The NJ 2027 state budget also reflects the continuing importance of state and local cybersecurity investments. At your local level, the most effective approach is to develop a multi-year technology roadmap tied to critical operations rather than react to individual purchases as they arise. Other actions for your technology and cybersecurity budget planning:
- Inventory critical systems and their replacement timelines
- Budget for recurring cybersecurity controls, training, backups and vendor oversight
- Review cyber insurance requirements before renewal deadlines
- Prioritize modernization based on operational risk, not only system age
The Value of Starting Now
None of these five risks are new. What makes the 2027 cycle noteworthy is the degree to which these risks overlap. Your municipality can absorb an isolated cost increase more easily than simultaneous pressure from health benefits, infrastructure, technology, contractual obligations and limited recurring revenue growth.
Starting your budget conversation now, in the last quarter of the current year, will give your municipality the advantage of time. You will have more time to update your assumptions, challenge departmental estimates, quantify alternatives review shared service opportunities, identify grant strategies and communicate tradeoffs to the governing body before decisions become urgent.
We Can Help
Our team assists municipalities every day with evaluating financial trends, developing multi-year budget and capital forecasts, assessing the impact of rising costs and changing revenue sources —all to identify opportunities to strengthen long-term financial sustainability. By working with municipal officials early in their budget process, we help turn their financial data into practical strategies that drive informed decision making and responsible fiscal planning. Let us help your municipality.
Contact Us
If you have any questions, please contact your PKF O’Connor Davies client service team or:
Amy S. Perrone, CPA, RMA, CMFO, PSA
Director
aperrone@pkfod.com | 856.441.6253