From the AP:

NJ Budget Woes Loom

New Jersey Gov. Jon S. Corzine on Tuesday said the state could be facing a budget deficit as large as $3.5 billion next year.

A deficit that large could require the state to either increases taxes or cut services to balance next year’s budget, but Corzine noted state tax collections remain ahead of projections.

The deficit has been projected at $2.5 billion.

“It sort of depends what the economic conditions are, and they’re pretty broadly in dispute among a lot of the prognosticators,” Corzine said. “Revenues are coming in pretty well, as far as I know, at this stage.”

The state Treasury Department said tax collections are 1.4 percent ahead of projections, with income and sales tax collections doing better than expected. That indicates New Jerseyans are making more money and buying more goods than expected.

“While we are pleased that collections are tracking close to targets, we also know that it’s early and the revenue picture doesn’t come into real focus until later in the fiscal year,” acting state Treasurer Michellene Davis said.

David Rousseau, a fiscal policy adviser to the governor, said any better-than-expected revenue is critical with next year’s fiscal woes looming.

“We will continue to watch performance of our revenues closely,” Rousseau said.
…
New Jersey faced a $4.5 billion deficit in 2006. Corzine proposed increasing the sales tax to close that gap, sparking a dispute with lawmakers that closed state government for a week. The tax was increased, but half of it was devoted to property tax relief.