Rocky Mountain States' heavy spending could eventually mean budget stress.

WASHINGTON -- The next economic downturn could hit Rocky Mountain states particularly hard because their budgets have swelled the most due to rapid growth in the region, a new report from the Conference Board said.

"Since the Rocky Mountain region has almost certainly been growing at an unsustainable rate, the inevitable slowdown will likely create budget difficulties, forcing tax increases and spending cuts which will exacerbate the slump," said Jason Bram, an economist with the New York-based research group and author of the report that was released yesterday.

Thanks to the strongest growth in the nation, state spending is growing the fastest in the Rocky Mountain region and the pace is accelerating, the report said. Spending in those states is projected to grow by 7.9% in fiscal 1995, up from 5.2% growth last year. "The 5% per capita growth [in state spending there] is also the fastest in the nation," the report said.

But for now, budgetary distress in the Rockies is just a prediction. The report noted that states in general are currently enjoying the most robust economic growth since the mid-1980s.

"In fiscal 1994, tax revenues were in line with, or above projections in 43 out of 50 states," the report said. "Southern states and those in the Mountain region continue to register the greatest revenue surpluses, reflecting strong economic growth," the report said.

Even states on the coasts, where growth has been the slowest, have done relatively well lately. "Only two of the nine chronically sluggish Northeastern states reported revenue shortfalls this past year," the report said, referring to New Jersey and Rhode Island.

The West Coast has fared slightly worse. "Three of the five Pacific states reported shortfalls [last year], including California and Washington, the two most populous states," the report said. The third state was Alaska.

Budget surpluses have prompted officials in many states to cut taxes, but thoSe cuts are relatively small, according to the report.

"In aggregate, legislated changes in state taxes in fiscal 1994 amount to an estimated net decline of $1.8 billion nationally, a drop in the bucket of a $6 trillion economy," Bram said.

"Even in states like New Jersey, where tax cuts are proportionately large, much of the reduction is being counterbalanced by reduced aid to municipalities, which may translate into increased local taxes," Brain added.

Despite these tax cuts, states in general have remained relatively conservative through this latest wave of prosperity, according to the report. "Despite the improved fiscal health across America, most are holding the line on spending increases," the report said. "As with tax hikes, the result is likely to be little or no stimulus to the U.S. economy."

States on the West Coast have proven to be the most conservative, the report said. Household income has been growing by almost 4% in the region, but total state spending has actually declined, with per capita spending projected to drop by 2.9% this year.

For the sake of comparison, the report noted that per capita state spending is expected to grow by a little less than 2% in the Middle Atlantic states.

"But while the trend in these two regions is encouraging, the ratio of state and local government spending to personal income is still higher than in most other regions," the report said.

The report also presented the group's latest regional performance index, a gauge of economic strength that is a composite of consumer confidence, help-wanted advertisements, employment, residential building permits, and retail sales.

The Rocky Mountain region posted the strongest showing, gaining 5.6% year-over-year in August, which is the most recent month for which figures are available, the report said.

All regions gained in August, with the Pacific region posting the lowest gain of 2.9%. The average gain among regions was 4.3%, the report said.

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