The Legislature actually writes the budget based on the governor's proposal, and it is usually the last major piece of business lawmakers do before they adjourn in May. Murkowski will have the final say, however, because he can veto items from the final budget passed by the Legislature.

The budget for FY 2007 would spend $3.62 billion from the general fund, some $500 million more than last year because of a major increase in oil revenues.

Republicans and Democratic legislators, however, share a goal to save about half of the expected $1.2 billion surplus coming from increased oil revenues. Considering that the governor's budget spends almost all of that, the lawmakers will try to make some cuts to his plan this spring.

"It was a long, long, long, long laundry list of spending ideas," said Sen. Kim Elton, D-Juneau.

"If you want my opinion, I think he's a candidate (for re-election)," said House Speaker John Harris, R-Valdez. The governor will announce his plans later this month, according to his staff.

The governor said he supports a robust transportation and construction program that will total $1.3 billion, including $873 million in federal funds, and $45 million to tackle deferred maintenance on state buildings.

He is asking the Legislature to set aside $400 million of the surplus for a possible state equity investment in a natural gas pipeline, and also said the administration is studying the idea of buying a part of the trans-Alaska oil pipeline as an investment as well as to reduce conflicts with the pipeline owners over transportation charged for shipping state-owned royalty oil.

The governor is also asking for more money for schools, the university system, rural communities and low-income Alaskans to deal with high energy prices, and municipal governments in dealing with past retirement costs.

Last year, the state stepped in to help local governments as well as school districts deal with projected deficits in retirement obligations, but while Murkowski supports another payment this year, eventually local governments will have to contend with the retirement obligation themselves, the governor said Jan. 12.

He challenged local governments to work with the administration to identify a recurring revenue source - such as the Amerada Hess fund in the Alaska Permanent Fund - for state financial assistance to municipalities. The Amerada Hess fund is a subaccount in the permanent fund with moneys from an oil litigation settlement. Under a court ruling in the settlement, its earnings cannot be used for dividends to citizens.

Murkowski also indicated he will again propose the percentage-of-market-value plan for the permanent fund, with some of the revenues going to municipalities as well as schools.

The percentage-of-market-value plan was first proposed by the permanent fund's trustees as a better way of managing the fund's income than the current system, which is set out in state statute. It is a method commonly used by endowments.

In 2004, Murkowski convened a "Conference of Alaskans" in Fairbanks to consider the plan. The conference produced a plan for distributing a percentage of the fund's income for citizen dividends, education and local communities. The proposal passed the state House but not the Senate.

"Had this proposal been enacted in 2004, $1.8 billion would have been available to fund education, nearly $200 million would have been available for communities around the state without touching one penny of the state general fund. And over the past two years Alaskans would have gotten $2,080 in permanent fund dividends instead of $1,765."

Adopting the income management plan will require a constitutional amendment, and the governor said he will "have more to say" on this later in the session.

"I really believe this issue should be put to the people on the ballot. I believe Alaskans are willing to share a portion of the permanent fund to benefit the whole. We shouldn't be afraid to ask," the governor said Jan. 12.

Murkowski's idea of buying part of the oil pipeline drew mixed reactions from legislators. The governor said talks already have begun with trans-Alaska pipeline system owners on the state carving out its share of the oil pipeline, and "there is some interest from the other side," Murkowski said.

"Our team negotiating the gas pipeline will pursue this once they are done with their current work and are available to negotiate oil pipeline ownership," Murkowski said.

Rep. Beth Kerttula, D-Juneau, said that proposal could be a bad idea, considering the pipeline's aging infrastructure and that owning a minority stake would not give the state much control.

Harris said the idea is worth looking at, but he will wait to look closer at the proposal before forming an opinion.

House and Senate members said they may allocate dollars for future education funding again as they did it last year, but it may be unlikely they will set aside the $565 million the governor is requesting.

In his speech, Murkowski also said his administration and the Department of Environmental Conservation will retain the current regulatory prohibition on mixing zones in salmon spawning areas, instead of seeking exceptions for groups on a case-by-case basis.

Andrew Petty of the Juneau Empire contributed to this article.