The Division of Local Government Services (DLGS) issued Local Finance Notice 2025 -14 (LFN) information concerning municipal and county budgets and the 1977 and 2010 cap laws. Additionally, LFN 2025-14 provides guidance on Cost of Living Adjustments (COLA) and the use of COLA ordinances as well as Group Health Insurance thresholds.  

The COLA for CY2026 is 2%. N.J.S.A 40A:4-45.2 requires that “municipalities and counties shall be prohibited from increasing their final appropriations by more than 2.5%…” unless action is taken by the governing body to increase their final appropriations, subject to the cap to the statutorily permitted 3.5%. In the case of counties, the increase applies to the property tax levy, not final appropriations. A municipality may by ordinance, or county by resolution, increase the COLA percentage up to 3.5% or bank the difference between its final appropriation and 3.5% for up to two years. An ordinance or resolution, respectively, may increase the appropriations and bank any unappropriated balance.  

Cap bank balances from CY2024 and 2025 are available for use in CY2026. Once complete, the 2026 calculation will be uploaded to FAST under the 2026 Introduced Budget and in the CY2025 levy cap master file.  

To increase the cap, the governing body must take the following measures: 

• After January 1st, and prior to the introduction and approval of the budget, an ordinance (resolution for counties) must be introduced including the new rate (increased percentage) and additional amount of appropriations to be added.
• A majority of the full membership of the governing body must approve the ordinance (resolution), and it must be published, and a public hearing held at least ten (10) days after the publication date. A certified copy of the introduced ordinance (resolution) must be filed with the Director of DLGS within five (5) days of introduction. 
• Final adoption by the governing body may take place after the public hearing and prior to adoption of the budget.  
• The ordinance (resolution) takes effect immediately upon passage, and a certified copy of the adopted action must be filed with the Director within five (5) days. 
• Cap increase referendums are not permitted if this option is chosen.

N.J.S.A 40A:4-45.3e provides for a cap exception for Group Health Insurance limited to the amount appropriated that is over 4% of the previous year’s expenditure but does not exceed the State Health Benefits percentage increase. DLGS has listed the State Health Benefits percentage increase for CY2026 at 36.2%, so the 1977 cap law exception for Group Health Insurance is 32.2% and to be appropriated on sheet 20. The 2010 levy cap Group Health Insurance exception is based on the same increase, so the increase will be 34.2% for the levy cap calculation. Both should be calculated in the levy cap workbook.  

The Local Finance Board has approved a one-year cap exclusion for appropriations for Garbage and Trash Removal, Disposal, Liability Insurance and Workers’ Compensation Insurance. Municipalities that appropriated correct amounts outside the cap for the above-mentioned purposes will be allowed to add the 2025 appropriation to the 2026 cap base.  

If you have any questions regarding LFN2025-14, please e-mail or call the Bureau of Financial Regulation and Assistance at 609-930-1994. 

Contact: Erin Knoedler, Legislative Analyst, eknoedler@njlm.org, 609-695-3481, x116.