Governors Say ‘Economic Schism’ Hurts Budgets

An “economic schism” among the states brought on by regional recessions in the country’s energy and farm belts continues to have a major impact on state budgets, the nation’s governors said Friday.

The governors’ study found regional recessions forced 18 states--many of them energy producers battered by lower oil prices--to cut their enacted fiscal 1986 budgets after the year began.

Only weeks into their new fiscal year, nine states have cut their planned budgets to avoid deficits, said the report issued by the National Governors Assn. and the National Assn. of State Budget Officers.

Such budget cutting is rare when the nation is not experiencing a recession, the report said. In 1985 only three states slashed already enacted budgets.

Reflected in Outlooks

“The economic schism that exists between states with thriving economies and those with deteriorating economies continues to be reflected in their fiscal outlooks,” the report said.

“Exceptionally good state fiscal conditions are predominant in the New England and Mid-Atlantic regions, while energy-reliant state economies are devastated by the plunge in oil prices,” the report said.

“Farm states and states dependent on the timber and textile industries also continue to be battered by poor economic times.”

Overall, growth for fiscal 1987 budgets will be modest--reflecting the projected slow growth in the national economy--with economically healthy states experiencing higher growth rates, the report said.

The report also said that the Gramm-Rudman balanced-budget law and the Supreme Court’s ruling voiding a key provision of the statute have made it difficult for states to predict how much federal money they will receive.

Federal aid makes up 23% of total state general revenues.