In terms of logistics it would be extremely difficult, but why not combine 1s and 2s together and even bring in maybe top 2 in div 3. Lots of cases of div 2 teams being better than other clubs div 1s. There's the argument that those kids should move clubs for the opportunities to play higher and even things out, but that has never really worked apart from a few examples.
Logistically it's a nightmare, but why not even adopt a play in scenario for teams. Could have a div 2 championship one weekend and then follow with full state championship later with reserve finalists joining div 1 tournament. It might even ease pressure on officials and venues spreading it out.