As a result of Alaska's full-blown dependence on oil money, the state now faces a grim $4.1 billion budget deficit. Knapp's message is simple, but sobering: "The era when we can rely on oil to pay for most of state government is basically coming to an end."
According to Knapp, the state faces four basic options for reducing the state budget deficit. "We have a problem that can really only be solved by pulling a lot of economic levers," he said. "And the essential issue we face is: How hard do we pull each one?"
First, the Alaska Legislature needs to cut the state's $5.2 billion budget, although which programs should be reduced and how large those cuts should be remains a hotly debated issue. Second, Alaska residents and businesses will have to kick in more money for state programs. This year, the state expects to receive about $1 billion in oil money and $500 million in non-oil revenues. Alaska is currently the only state in the union that doesn't charge a state income or sales tax.