There would be also be additional revenue from oil royalties and other state taxes on oil, the governor said in his State of the State Address to the Legislature Jan. 10.

Were the gas pipeline operating today under the terms of the proposed contract, the state would earn $4 billion from oil production and $5 billion from the gas project, for a total of $9 billion, Murkowski said.

The new revenue stream from gas will allow the state to continue to provide essential public services without imposing a state personal income tax, the governor said.

Most of Alaska's treasury income is from oil taxes and royalties, and the earnings from a portion of that income goes to every Alaska resident in the form of a dividend.

Murkowski said negotiations for fiscal terms for a natural gas pipeline from the North Slope have resumed with the three major Slope oil producers, BP Exploration (Alaska) Inc., ConocoPhillips Alaska Inc. and Exxon Mobil Corp. The substance of the key issues have been negotiated, but important details remain for the $20 billion project to go forward, the governor said.

"I will use the full force of my powers as governor to finalize a gas pipeline contract that protects the public interest, returns maximum revenues to the state treasury and provides good job opportunities for Alaskans," he said.

The governor asked the Legislature to support replacing the current outdated production tax system and its Economic Limit Factor exclusions with a net profits tax that will give the state a more reasonable share of oil revenues while encouraging exploration. If passed by the Legislature, the net profits tax would be included in terms of a fiscal contract the state is negotiating with the sponsor group to build a natural gas pipeline.

"It is time to reform our oil production tax system with a new tax system that keeps industry strong, provides incentives for exploration and development, and ensures that at high oil prices, Alaska gets a reasonable share compared to other oil provinces around the world," Murkowski said.

The tax idea is sound in its basic structure, but details need to be worked out, said Chuck Logsdon, Murkowski's gas negotiating team spokesman.

House and Senate Democrats warned there is danger in melding oil taxes with the gas line, and possibly surrendering the state's taxing authority for 30 years or more.

Sen. Hollis French, D-Anchorage, said specifics were lacking in the net profits tax proposal to make a judgment about the idea.

Other Democrats said they were gratified by Murkowski's proposals for oil tax reform and education funding.

"I think he's listened to what we've said," said Rep. Beth Kerttula, D-Juneau, echoing her colleagues who stumped for oil tax reform in 2005.

Democrats were unsuccessful in their bid for oil reform in the last session. The Republican majority provided only one hearing on Democratic legislators' proposals to change Alaska's oil-tax structure.

Republican and Democratic legislators both said they would have to look carefully at the details of Murkowski's proposal for a net profits tax. They noted that Murkowski hasn't offered a full description of his proposal yet.

Though the governor suggested in his speech that the oil-tax proposal would be included in a gas line contract, legislators said they may be legally constrained from approving it that way.

"If he tries to tie it (to the contract), we're not going to let it happen," said House Majority Leader John Coghill, R-North Pole. "That means a separate piece of legislation has to travel."

In other parts of his speech, Murkowski highlighted the administration's successes in growing Alaska's resource-based economy and improving education.

"Our development initiatives are working. The private sector has created more than 13,600 new jobs in this state since this administration took office," Murkowski said. "Today we can look forward to both a permanent fund and a permanent economy."

Among the priorities highlighted Jan. 10 are another significant increase in K-12 funding, a balanced transportation agenda that includes the Knik Arm and Gravina bridges and significant spending on road construction projects elsewhere in the state.

Murkowski is also seeking funds to continue a feasibility study on an Alaska-Canada rail extension to link with the Lower 48 rail system. Such a rail link could lower gas pipeline construction costs by $1 billion, speed mineral shipments from the Interior and possibly lead to a new cargo transportation industry, Murkowski said.

The governor's transportation initiatives include proposals to ease traffic congestion in Anchorage, Fairbanks, the Matanuska-Susitna Borough, Kenai and elsewhere.

Murkowski noted that the two controversial bridge projects create critical space for Anchorage and Ketchikan to grow while contributing to greater resource development opportunities. "The Knik Arm Crossing will give Anchorage and Mat-Su a place to grow. I predict that within a few short years after its construction we will have a brand new community (across the arm from Anchorage)," Murkowski said.

The Associated Press and the Juneau Empire contributed to this report.