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Alaska governor Bill Walker. Image courtesy of Bill Walker/Flickr.

Alaska is facing a $3.5 billion budget deficit, about $2.1 billion more than initially projected, as oil revenues plummet amid weak oil prices.

The state’s spring budget forecast the price of oil at $105 per barrel, but prices averaged about $76 for the fiscal year ending in June.

Prices are projected to drop to $66 per barrel during the 2016 fiscal year.

Alaska now expects to book $2.6 billion in unrestricted general fund revenue this year, nearly half of the $5.4 billion booked in 2014.

The dip in general fund revenue is exacerbated by about $200 million in supplemental budget items like oil and gas credits, AP said.

The state’s government will most likely tap reserve funds to close the budget gap.

Alaska’s Revenue Department said despite weak oil prices and slumping short term revenue the departments long term view remains “optimistic.”

“Greater investment by the oil and gas industry on the North Slope and solid performance of state investments makes Alaska’s overall financial health sound,” Revenue Commissioner Marcia Davis said.

Production taxes are also expected to drop sharply to $520 million this year from $2.6 billion in 2013.

Taxes are expected to slump again to $310 million in 2016 before recovering to $1.6 billion in 2017.

State officials hope that once oil prices rebound revenues and production taxes will rebound.