With a foreseeable $1.65 billion budget deficit facing the state this fiscal year, the Alaska Governor Sarah Palin has proposed a $268 million cut in spending, in order to tap the state savings.

The proposal by the Palin administration has come as a means to counter the huge budget deficit, which has already surpassed the $1 billion estimates merely two months back, largely due to low oil prices - as oil taxes and royalties account for a substantial part of the state's revenue.

According to Karen Rehfeld, budget director for Palin, the budget cutbacks will trim down the amount the state will finally need to draw from state reserves. The proposed reductions by will help bring down the deficit $1.3 billion.

In the opinion of budget experts, the state budget deficit would reach a whopping $3 billion next year if oil prices situation does not change.

While Palin is seeking the lawmakers' approval for the proposed spending cuts and tapping budget reserves, the legislators are of the opinion that most of cuts do not imply any reductions at all. They claim that a large portion of the proposed spending cuts is essentially unrealized tax credits, for companies investing in oil and gas development, being returned to the treasury.

Anchorage Republican Mike Hawker, Co-chairman House Finance Committee, said: "They're claiming a $268 million cut. The reality is it's pretty much just a net zero proposition!"