Gov. Sean Parnell is proposing an 8.6 percent increase in state general fund spending next year, to be paid for with projected high oil prices.

The budget Parnell released Monday includes money to pursue an in-state pipeline to bring natural gas from the North Slope to the Railbelt, and a "roads to resources" program that steers $10 million to preliminary work on roads to Brooks Range oil and gas reserves and Nome.

His budget also calls for financing two new buildings outside of the general fund, a new $75 million state crime lab in Anchorage and $109 million for a life sciences building at the University of Alaska Fairbanks. The state scaled back on big projects this year.

"Capital spending is investment spending; it's got long-term benefits for all of us. That's why I'm pumping up Alaska's spending muscle in the capital budget. These dollars will fuel Alaska's economy, provide long-term economic opportunity and will put Alaskans to work," Parnell said.

There's also money for Parnell's $7 million initiative to fight domestic violence and sexual assault, and tens of millions of dollars for maintenance the governor calls overdue at state-owned buildings.

Legislators will decide how much the state spends in the fiscal year that begins in July. They'll start considering Parnell's plan next month.

"The governor has a number of initiatives he's going to be asking for. And the ongoing question is, how in the world are we going to sustain the funding for those initiatives in the face of this accelerating decline in oil production? That's what we have to reconcile," said Anchorage Republican Rep. Mike Hawker, who helps to set state spending as co-chair of the House finance committee.

Hawker cited Parnell's proposed scholarship program, in which the state would pay the college and job training tuition for Alaska students depending on their grades and courses taken in high school. Parnell wants to pay for it by carving out $400 million of the state's $8 billion Constitutional Budget Reserve Fund savings account as its own separate endowment. He says the interest and investment profits from it would be used to pay for the scholarships.

Parnell said he is limiting spending on state agencies. He said more than half the 5.6 percent increase in his budget for state operations is for programs such as Medicaid in which spending automatically grows when more Alaskans are eligible. Parnell's budget is based on his revenue department's forecast that North Slope oil will average $76.35 over the state fiscal year that begins in July. If that happens, Parnell said his budget would leave the state with a $500 million surplus.

The price of Alaska North Slope crude closed at $68.76 on Monday.

Fairbanks Democratic Sen. Joe Paskvan said Parnell is not making investments where he should. Paskvan said the governor would be asking to spend far more than $15 million on the Dalton Highway if he thought a natural gas pipeline to the Lower 48 was really happening. It's a signal that Parnell may not have much confidence in the TransCanada project and the Alaska Gasline Inducement Act, Paskvan said.

He said Parnell's own transportation department said it needed nearly $2 billion in infrastructure work over the next six years to be ready for construction to start on either the TransCanada line or the Conoco Phillips and BP project. That included $250 million next year to get going, and Paskvan said virtually none of that is in the budget.

"I think it unfortunately means that the governor has a belief that neither large diameter line is likely to be built within the next six years," Paskvan said.

Parnell said he's providing what's needed for the gas pipeline by including $150 million to reimburse TransCanada costs due under the Alaska Gasline Inducement Act next year as well as $10 million for the state team working on the project. Big road work can wait, he said.

"We absolutely need to get a run at it, but we don't need to make significant expenditures right now for that," Parnell said.

Parnell's budget does include $8 million for early work on a road to Umiat. The plan is to eventually construct a 90-mile road that would access oil and gas reserves in the northern foothills of the Brooks Range. Parnell also wants to put $2 million toward looking at a road from Fairbanks to Nome.

He's calling for $6.5 million for work toward a potential in-state natural gas pipeline, which would bring North Slope gas to the Railbelt. That project could cost $4 billion should it be built eventually.

Parnell said state agencies wanted a 10 percent increase in their budgets. But they're only getting 2.3 percent, not counting automatic increases in areas like Medicaid and the state's education funding formula, he said.

"Getting there was no simple task," he said. "They're going to absorb fixed cost increases in a number of areas such as leasing and utilities."

This is the first state budget proposal for Parnell, who took over as governor in July after Sarah Palin's resignation and faces voters in November.