New Jersey Division of Local Government Services Local Finance Notice 2026-17
LFN 2026-17: CY2027 Budget Caps — A 2.5% COLA, the 3.5% Option, and Updated Health Insurance Exclusions
Issued October 16, 2026, LFN 2026-17 sets the cap parameters municipalities and counties will work with when building CY2027 budgets. It covers the 1977 cap law Cost of Living Adjustment (COLA), the ordinance or resolution needed to exceed it, cap banking, and the Group Health Insurance exclusions under both cap laws.
The CY2027 COLA Is 2.5%
Under N.J.S.A. 40A:4-45.2, municipalities and counties are prohibited from increasing final appropriations by more than 2.5% unless the governing body acts to raise the figure. For counties, the increase applies to the property tax levy rather than to final appropriations.
The 2.5% automatic increase is the statutory maximum under the 1977 cap law. A municipality may adopt an ordinance — or a county a resolution — raising the COLA percentage to as much as 3.5% under N.J.S.A. 40A:4-45.14(b). Budgets remain subject to both the 1977 cap law and the 2010 levy cap law.
Adopting the Higher Rate: Five Required Steps
Local units electing the 3.5% rate must follow a specific sequence:
- After January 1 and before budget introduction, introduce an ordinance (resolution for counties) stating the new rate and the additional appropriations to be added
- Secure approval by a majority of the full membership, publish the action, and hold a public hearing at least 10 days after publication
- File a certified copy of the introduced action with the Director within five days of introduction
- Take the final vote after the public hearing and before budget adoption — the chief executive may veto depending on the form of government
- File a certified copy of the adopted action with the Director within five days; the action takes effect immediately upon passage
Note: cap increase referendums are not permitted if this option is chosen.
Cap Banking Is Available — But Not Automatic
The same ordinance or resolution may also bank, for up to two years, the difference between the final appropriation subject to the cap and 3.5%. A single action can do both, but banking must be affirmatively elected.
Cap bank balances from 2025 and 2026 are available for use in 2027. A model municipal COLA ordinance is posted on the Division’s Municipal and County Budgets webpage, and 2027 cap calculations will appear in FAST under the 2027 Introduced Budget, along with the 2026 levy cap master file.
Group Health Insurance Exclusions
The State Health Benefits percentage increase used in these calculations is 22.1%, which drives two different exclusion figures:
- 1977 appropriation cap (N.J.S.A. 40A:4-45.3e): the exception applies to amounts appropriated above 4% of the prior year’s expenditures, producing an exclusion of 18.1%. The excluded amount is appropriated on sheet 20.
- 2010 levy cap: the exclusion applies to increases above 2%, producing 20.1% for the CY2027 levy cap calculation.
Both amounts are computed in the levy cap workbook. For the appropriation cap exclusion, use the figure on the Health Care tab at line 34, Item 5, under Section C. The levy cap exclusion is added to the workbook summary page automatically.
Key Takeaways for Local Units
CFOs should build CY2027 budgets on the 2.5% COLA and decide early whether the 3.5% ordinance or resolution is needed — the introduction, publication, hearing, and five-day filing requirements all run before budget adoption, and choosing this route forecloses a cap referendum. Units carrying 2025 or 2026 cap bank balances should confirm those amounts in FAST, and anyone preparing the levy cap workbook should pull the 18.1% and 20.1% health insurance figures from the correct lines rather than calculating them independently.
Local Finance Notice 2026-17
Please follow the link below to read more about these items and guidance on how your local unit can implement them: https://www.nj.gov/dca/dlgs/lfns/2026/2026-17.pdf
Contact Wielkotz & Company, LLC Today
For further information on Local Finance Notice 2026-17 and its implementation feel free to reach out to Steven Wielkotz at (973)-835-7900 ext. 201 or sdw@w-cpa.com.
