The following is the prepared text of Alaska Gov. Frank Murkowski's state of the state address:

Mr. President, Mr. Speaker, and members of the Alaska Legislature Welcome back to Juneau and thank you for the opportunity to deliver this State of the State address and to all Alaskans a Happy New Year.

First I'm pleased to introduce my partnerNancy. Last year in July we shared our 50th Wedding Anniversary with a big family celebration in Ketchikan where we were married. And just last week our family was again assembled in Washington, D.C., for the baptism of our 13th and youngest grandson, Jack, and to participate in the swearing-in of Alaska's United States Senator, Lisa Murkowski.

Now, I'm pleased to recognize my leadership team: beginning with Lieutenant Governor Loren Leman and his wife, Carolyn.

And my cabinet, whose tireless work has brought a renewed sense of opportunity to Alaska. I ask you to join me in acknowledging their service.

As the New Year begins, Americans give thanks for the freedoms and democracy we enjoy, so it's appropriate that we turn our thoughts and prayers to our Alaska National Guard troops serving in Iraq.

As we are meeting tonight, Alaska's Air National Guard is seeking to move supplies into Kaktovik to protect our citizens there. I am very concerned about the elderly and children in the village. All Alaskans join me in praying for the earliest possible relief to our fellow Alaskans in Kaktovik. We will do everything we can to help them.

Our National Guard has also provided humanitarian relief in Southeast Asia after the terrible tsunami. With us tonight is Major Russell Wilmot who has already led six brave Anchorage firefighters to Thailand. All Alaskans join me in thanking our National Guard.

It will take time for us and the world to absorb the enormity of this tragedy, the loss of 150,000 souls. The disaster reminds Alaskans of the Good Friday earthquake of 1964 and the tragedy emanating from the ocean we all share. I ask for a moment of remembrance for those who have been lost and their families.

Tonight, it is a special honor for me to welcome the courageous aircrew members who responded to the stricken freighter Selendang Ayu on December 8th. In our audience are Lieutenants David Neel and Doug Watson and Aviation Maintenance Technician 2nd Class Brian Lickfield and Aviation Maintenance Technician 3rd Class Gregory Gibbons. They are joined by Rear Admiral Jim Olson.

Alaskans know well and appreciate your willingness to come to the aid of those in distress. No matter when. No matter where. We thank you and the many other Alaskans including state personnel who helped. As a former member of the Coast Guard and in the spirit of the service "Semper Paratus" for a job well done.

As a result of this maritime disaster, I am asking the Coast Guard to assess the risk which international North Pacific shipping lanes pose to Alaska in order to direct traffic away from our productive fishing grounds. I have been contacted by the owner of the Selendang Ayu and he has assured me that all of their ships will have survival suits for all crew members aboard.

My fellow Alaskans, as I stand before you today at the midway point of our administration, the state of our great state is strong . . . and growing stronger every day. We are making real progressnot just marking time. We are seeing real dividends from our effort:

--- to grow our economy and create jobs for Alaskans by responsibly developing our abundant natural resources; --- to assure that Alaskans are safe in their communities, and --- to assure that Alaska families are healthy with a good quality of life.

The responsibility of this 24th Alaska Legislature and me as your Governor is unique in our short 46 years as a state. For the first time we have solid majority in the state Legislature and in the U.S. Congress. The President's agenda corresponds with Alaska resource prioritiesbuilding the gas line and opening ANWR. In addition, we have the good fortune to enjoy high commodity prices for both gas and oil as well as minerals. Our fishing and tourism are strong and prospects for the timber industry are encouraging.

Our job is to come together and do the business of the people with a minimum of partisanship. The challenge is ours:

--- the building of our economy --- a quality educational system --- quality social services for Alaskans especially for our vulnerable children and for seniors the highest level of care --- security through expanded resources for our Troopers and the assurance that every Alaskan can enjoy the very special qualities of Alaska's lifestyle. Alaskans have great expectations for us to succeed by coming together to simply do what is right for Alaska. We must live up to the confidence they placed in us through the elective processthey should not settle for less.

JOBS FOR ALASKANS

Alaskans voted me into office based on a shared vision for Alaska of growing our economy through responsible resource development.

This growth is a means, not an end. Growth provides Alaskan families with the opportunity of a good job.

We've seen 8,700 jobs created in Alaska since I entered office, and our first objective is to work to create more. Our resource development agenda is delivering benefits to Alaskans, and there will be more as we move forward.

A good job in Alaska near family and friends and a familiar culture is the greatest antidote to substance abuse and violence.

A job provides a person with self-respect and a sense of self-worth. To his or her family, it provides sustenance and shelter.

Jobs provide an economic base for our cities and communities.

That's why creating Alaska jobs for Alaskans is our #1 priority.

NATURAL RESOURCES

Our oil and gas industry has generated immense riches for Alaska. It helped build our state and provided us with a nearly 30 billion dollar Permanent Fund. Oil production on the North Slope will increase and we will continue to work with the producers and explorers to increase oil flow through the Trans Alaska Pipeline System (TAPS).

Technological advances and incentives will allow us to produce more heavy oil, which is abundant on the North Slope.

Most of the gas we have found so far in Alaska has been as a result of our search for oil. Now, there is a tremendous opportunity to explore for gas in Alaska. Technological advances are already beginning to allow gas hydrates to be included in gas exploration targets.

But we must also remain vigilant to ensure that the wealth generated by Alaska's oil and gas production is shared equitably by the producers and Alaskans in accordance with law.

We're taking administrative action effective February 1st which recognizes that the producers have chosen to operate and administer the giant Prudhoe Bay Reservoir and most of its associated producing satellites as one field for purposes of the Economic Limit Factor (ELF).

This decision will affect only Borealis, Midnight Sun, Orion, Polaris, Point McIntyre, Aurora, and the Prudhoe Bay Initial Participating Areas. All other current producing units, participating areas, and fields yet to be discovered will continue to be administered as they are now, and appropriate incentives will be maintained.

It was never the intention of the Legislature which crafted revised ELF legislation in 1989 to have it reduce taxes close to zero in situations in which satellite fields are administered as one field with the Prudhoe Bay field. Rather, the ELF formula was designed to spur production of marginal fields requiring large investments for development. This is the same approach we took in proposing oil and gas tax credits for new fields which the Legislature passed in 2003.

Had Prudhoe Bay and its associated producing satellites been operated and administered in 1989 as they are today, they would have been treated then by the Legislature as one field for ELF purposes just as we are proposing to do now.

This decision will not apply to heavy oil. If additional incentives are needed to lift heavy oil I will consider them.

This administrative action does not change the ELF concept or the application of ELF to remaining fields. For example, this administrative change would not affect the current ELF application to the Kuparuk, Alpine, Northstar, or Liberty fields. Whether ELF should be changed remains in the hands of the Legislature following legislative hearings just as I have previously proposed.

Recently, the Attorney General challenged the oil tariffs issue before FERC, the Federal Energy Regulatory Commission, with the objective of reducing the cost of shipping oil through TAPS. Anadarko has also challenged the tariffs increases. We have had a long and tumultuous history of litigating TAPS tariff issues. I have had preliminary discussions with TAPS owners and I now believe that because there is excess capacity in the pipeline, the state should consider acquiring a portion of the line which carries our 12.5% royalty oil to market. Therefore, I ask the Legislature evaluate the benefits to the state of such an acquisition during this session.

Of course, our greatest prospect for new jobs and prosperity is the construction of a gas pipeline.

We are pleased to have a Stranded Gas Act application from the three major North Slope producers and from TransCanada. The Port Authority and the Alaska Natural Gas Development Authority are pursuing gas pipeline proposals, but have not applied under the Stranded Gas Act. I have also met with Warren Buffet regarding a proposal by MidAmerica.

I hope soon to deliver one or more Stranded Gas contracts to this Legislature. I was recently in London meeting with senior BP officials who renewed BP's commitment to proceed expeditiously with negotiations.

It is in the interests of the state to support the first economically viable project that can be built. One that provides gas and gas liquids for Alaskans and access to new sources of gas for explorers. Proposals should provide gas to the Lower 48 and evaluate the economics of an LNG facility in Valdez and spur lines to Southcentral and the Kenai.

When construction finally begins on the gasline, our Department of Labor estimates it will create 8,500 jobs. Eight thousand, five hundred new paychecks, and generations of new opportunities for generations of Alaskans. We recently graduated a class of 100 pipeline workers in Fairbanks, and that's only the beginning. This time, when the line is ready to be built, Alaskans will be ready to build it.

Constructing the gasline is the most important economic development project in Alaska's history and my highest priority for Alaska.

I want a gas pipeline that benefits all Alaskans. State equity ownership will go a long way toward solving the state's fiscal problems. I'm pleased that our proposals to take an equity interest in the pipeline have been accepted as a policy, subject to negotiating equity percentages.

Alaskans should also be able to invest directly in the pipeline, and we are working on a plan to make that a reality. There is now a more favorable national climate to oil and gas exploration in Alaska. In Washington, D.C., there is renewed confidence that ANWR will finally be opened. We've got a delegation that is taking the lead on the issue, a President who supports ANWR, and a Congress that after the recent election appears supportive. And, last week after meeting with Secretary of Interior Gale Norton in Washingon, D.C., there is no question she wants ANWR open on her watch.

Our administration is working hard here in Alaska to promote more exploration. I have been meeting with new explorer companies to develop additional strategies to increase explorationamong them Pioneer, Kerr McGee, Shell, and Armstrong.

On the Alaska Peninsula, there is a grassroots call for oil and gas exploration. We're planning a lease sale there in the Fall of this year.

There are significant oil and gas opportunities in the Susitna and Copper River basins, Yukon Flats, and Nenana, where we expect to see additional exploration activity this year.

The energy situation on the Kenai Peninsula is critical. There is a need to increase onshore and offshore exploration in Cook Inlet. Again, I would ask the Legislature to evaluate whether the state should pay a portion of the mobilization and demobilization costs to bring a jack up drilling rig to Cook Inlet to get exploration moving again. I challenge industry to match the state's mobilization/demobilization contribution and also put up the risk capital necessary to find more gas in Cook Inlet.

We also need to explore in the Kenai National Wildlife Refuge where the Swanson River field continues production. We also must work with the Interior Department to ensure that the Swanson River field be available for summer gas storage. I've met with Secretary Gale Norton and we have a big job convincing USFWS to issue the necessary permits.

Another proposal being evaluated is to put the 50 Megawatt Healy Clean Coal plant back on-line. This generating capacity is equal to 10 million cubic feet of natural gas per day. If Healy were operating we could divert to the Kenai plants 10 million cubic feet per day of gas that we are currently using to generate electricity in Southcentral Alaska.

We cannot sit idly by and wait until both Kenai plants are shut down for lack of natural gas. Once the plants close more than 300 jobs are lost, the plants are likely to never open again. This was our experience with the closure of the pulp mills in Ketchikan and Sitka because of environmental opposition to Forest Service timber sales.

Another issue important to the Kenai is the disposition of the experimental gas to liquids facility owned by BP. I discussed this matter with officials in London last week and there may be a practical commercial application for the facility that could also involve the University of Alaska Fairbanks.

FISHING, TIMBER AND MINING

We are seeing renewed optimism in other sectors of our economy as well. Our fishing industry is vibrant, our salmon industry is coming back.

We've recharged our marketing efforts, thanks to the help of our Congressional Delegation, and we're seeing dividends to Alaska fishing families. We've seen improved ex-vessel values for chinook, sockeye, and pink salmon.

Alaska salmon is on the menu in more East Coast restaurants and on the shelves in Costco. Legal Seafoods, an East Coast chain says: "If it isn't Alaska wild salmon, it isn't Legal." We agree.

The huge stockpile of surplused pink salmon pack that used to sit in Seattle warehouses is gone.

And this Fall, NorQuest and Chicken of the Sea will operate a plant in Ketchikan processing smoked pink salmon in a pouch, creating 50 new jobs. There will be 15 more jobs associated with the opening of Ketchikan's cold storage plant for which the state provided matching funding.

We've made state timber available to keep the remaining Southeast mills (Wrangell, Ketchikan, Klawock) operating through the winter. We are working with the Ketchikan Borough to reopen a veneer mill that promises another 90 new jobs. Forty more new jobs will be added next year when a plywood line is opened at the new veneer mill.

We've also been speeding up our permitting process to move development projects along. The state is defending responsible new timber and mining development by intervening in litigation brought by special interest groups which want to stop development.

Mining provides some of the highest-paying jobs in the state, especially in job-poor areas of rural Alaska. High minerals prices, combined with a more reasonable and reliable regulatory environment, have spurred mining projects throughout the state.

We've been instrumental in getting the Pogo mine near Delta opened on schedule after a difficult start. And we're pushing federal agencies to get the Kensington mine up and running right here near Juneau. In addition, we are working to move along planning and permitting for the Donlin Creek and Pebble Copper mines and there will be others soon to be announced. The state is going to have to support efforts to provide both access and power to these isolated areas.

The visitor industry has rebounded from the 9-11 tragedy. We're assisting them with marketing. And we're working toward gaining greater access to important visitor destinations within Alaska like the Denali National Park, Glacier Bay National Park, and Wrangell-St. Elias National Park. We want more of our visitors to enjoy Alaska's treasured scenic wonders with good road access where appropriate.

Alaska can have a healthy environment and a thriving economy, and we are proving it.

FEDERAL-STATE RELATIONS

We are working to assume responsibility for administering federal Clean Water Act permitting. We are urging the Environmental Protection Agency to create a separate Region 11 here in Alaska as most other federal agencies have done.

As Congress takes up the Oceans legislation this year, we need to recognize the possible gravity of that issue to Alaska. I believe this matter will be as important to Alaska as was ANILCA, and I want to assure you that Alaska will be part of the national debate. One size state does not fit all.

We already have a fisheries management system that's second to none, and we don't need Washington bureaucrats and outside special interests controlling our fisheries or our policies for managing state and private land. That is what statehood was all about.

We are suing to establish title to our submerged lands in Southeast Alaska. We are also suing to defend Alaska's jurisdiction over its navigable waters and lands.

We are asserting Alaska's right to enter Glacier Bay, to select state land along oil pipeline right-of-way corridor, and to traverse historic RS2477 trails that provide traditional access across federal land.

But we're also cooperating with the federal government to improve the lives of Alaskans.

We will work with the Department of Interior on oil and gas lease sales in NPR-A and the Beaufort Sea. And we will work with the Interior to speed up the transfer of Alaska's land entitlements promised at statehood so that by 2009, Alaska can receive the land it was promised nearly half a century ago.

OUR FY06 BUDGET

Here at home, we've got some important budget proposals that I've asked you to consider this session.

First, I will propose legislation by which we can will issue bonds to make monies available to finally start to maintain our roads, parks, state buildings, and facilities that have been neglected for too long. The monies will build roads to our oil and gas resources and help untangle congestion problems in our population centers. Debt will be issued over several years as money is needed to pay for projects. Debt will be paid from earnings from the Amerada Hess settlement principal.

Our roads-to-resources agenda will create jobs in rural Alaska and stimulate the economy for years to come and thereby improve the lives of our people. My proposal to deal with traffic congestion recognizes the continued population growth that has already taken place in Anchorage, the Mat-Su valley, Kenai, and Fairbanks. It also recognizes that these areas will continue to growparticularly when gas pipeline construction begins.

Taken together with the 463 million dollars in bonds voters approved two years ago, our plan will provide many construction jobs for Alaskans and improve our transportation system.

The priority transportation projects we are pursuing include: --- Road from King Cove to Cold Bay with land exchange --- Bullen Point Road on North Slope --- Knik Arm Crossing --- Upgrade Dalton Highway --- Stampede Trail North Denali Access --- Gravina Bridge --- Juneau Access Roadthe EIS for this was approved yesterday --- Alaska Railroad extension to Army training area bridging the Tanana and onto Delta

We're also obtaining success in education.

More schools are making the grade under standards met by Alaska and the federal No child Left Behind Act. In 2003, 42% of our 500 schools met all achievement targets. In 2004, 58% of schools met them. That is a big gain by anyone's measure.

Across Alaska, we have seen tremendous efforts in all schools. There has been a 7% improvement in schools meeting math and language arts targets, which is a significant step in closing the achievement gap.

Last year alone we dedicated the largest dollar increase ever to public schools and our University system.

I am asking the Legislature to approve an additional 126 million dollars over the next two years to fuel our momentum ... A two year education budget will give teachers, administrators, school board members, and parents the budget certainty they needas well as hold our education system accountable for quality performance.

These dollars will let teachers focus attention on increasing student achievement and on delivering the promise of a solid education for every child.

Our children need a strong educational foundation to fully participate in our state's expanding economic base. Should you support our proposal we will have together increased per student funding by 29% since this administration assumed office. We want our children and their children to live and prosper in Alaska.

Our local governments need to use their tax bases to shoulder more of their own responsibilities. But increases in retirement system costs and unforeseen energy expenses have put too great a burden on local governments in the short term.

So I'm including 37.5 million dollars in my budget to cover the higher costs of our retirement system for local governments over the next two years. This buys them time to find local solutions that meet their local financial responsibilities.

The liability to the state and local governments for the unfunded portion of PERS and TERS is in the neighborhood of 5 billion dollars. This was caused by underfunding of the increased cost of medical care and retirement costs by the previous administration. Today we must pay the piper.

I also propose 6.5 million dollars to offset high energy costs in smaller cities, along with 20.7 million dollars to fully fund Power Cost Equalization. This will mark the first year since creation of the endowment that the PCE program has been fully funded. This will lower fuel costs in rural Alaska and create new jobs, thereby strengthening their communities.

We've had some success in dealing with high energy costs. We acted when the Bush caucus came to us last June with concerns about a number of rural communities having difficulty purchasing winter fuel.

We developed a plan that helped even the most financially-strapped villages, and more importantly, a plan that will help the villages better manage their own winter fuel programs going forward.

Tonight, I renew the commitment I made at the Alaska Federation of Natives convention in October to aid rural Alaska in obtaining lower-cost energy to sustain jobs.

I have asked the Department of Commerce, Community, and Economic Development and the Alaska Energy Authority to establish a work group from rural Alaska to recommend ways to lower its energy costs, building on the significant Rural Energy study done by the Alaska Energy Authority in April 2004 and the work done by the Alaska Energy Task Force you created in 2003.

I thank former Legislator Nels Anderson for his leadership in pushing for lower cost energy and greater employment in rural Alaska. And a thank you tribute to the late Harvey Samuelsona great Alaskan.

This administration remains committed to knocking down the barriers to employment in this state. And our results are encouraging.

I am proud to report to Alaska that our welfare caseloads are 52 percent lower than they were in 1997 because of the success of our Welfare to Work program. During the same period our annual cash assistance payments have been reduced by 66 million dollars, a 57 percent savings.

Just in the last year alone, we've reduced our welfare roles by 9 percent. Alaska was the recipient of a 3.2 million dollar federal bonus for its welfare-to-work success. And let us not forget what this means in human terms almost 7,000 more Alaska families are now self-sufficient and sharing in our state's economic prosperity because they have a job!

Ladies and gentlemen, our state's success in reducing welfare caseloads by putting Alaskans to work further illustrates that the best social program is a good-paying job.

We're also strengthening our commitment to protect our most vulnerable children.

My "Bring the Kids Home" initiative will return over 300 children that had to go out of state for residential psychiatric treatment. There are three major goals of the initiative: 1. to build and sustain community-based and residential services in Alaska for these kids; 2. to develop a system that provides the least restrictive setting possible for these kids consistent with quality care; and 3. significantly reduce the number of kids who must go out of state for care.

We will work with you to improve the Child In Need of Aid process. This problem requires more interaction with children, which means smaller case loads per social worker: That is why I am proposing to add 30 social workers to the Office of Children's Services.

We are keeping our commitment to seniors in need.

Our SeniorCare program has been a tremendous success, and one that should make us all proud. We've already provided monthly cash assistance to about 7,000 of our needy seniors, many of whom were not eligible under any previous program.

And we intend to do more.

Starting in January 2006, federal Medicare will provide an insurance plan for seniors to obtain prescription drugs. I am asking the Legislature to approve my plan to pay the federal insurance program's premium and deductible for every Alaskan senior with an annual income under 35,000 dollars. This will provide needed assistance to about 40 percent of all our seniors.

SAFE COMMUNITIES

We must use our temporary blessing of high oil prices in a meaningful way to respond to our most pressing needs. We cannot have a strong economy without safe and healthy communities, and I remain committed to fighting anything that erodes the fabric of our communities or our families.

Alaskans have to face up to the fact that our greatest enemy is alcohol and substance abuse. We have the dubious distinction of leading the nation in both areas.

Alcohol abuse has gotten off easy for too long in Alaska, and we must not tolerate it any longer. I'm asking all members of the Legislature to work with us to find a comprehensive strategy to address this statewide problem.

Over half of our domestic violence and more than two-thirds of Alaska's suicides involve alcohol and substance abuse. It costs our economy about 600 million dollars annually. It clogs our court systems, it clutters our corrections system and it strains our treatment networks. Mayor Begich told me that 75% of all Anchorage 911 calls involve alcohol abuse.

But more important, abuse destroys lives. It destroys the lives of the abusers. It destroys the lives of their families and closest friends. And it spreads through our society like a cancer.

Last year with your help we closed a loophole in the state's DWI laws eliminating the big gulp defense for drunk drivers and we tightened the state's local option laws. Working together we also raised the penalty for furnishing alcohol to a minor in a local option community and we expanded and strengthened the law for seizing property used in bootlegging. But our work is clearly not done.

I will ask for an increase in fines for drunken driving. Those who abuse alcohol and put the lives of others at risk must be held accountable. We will also pursue technology to stop and arrest those who run red lightstoo many people are killed.

In our rural villages, alcoholism is taking a heavy toll, and we will continue our efforts to help these villages help themselves. Bootleggers are learning that villages that have chosen a healthy lifestyle free of alcohol and drugs are going to be respected. Bootleggers need to know that they will face tough law enforcement.

We've already put 20 new state Troopers into the field and thanks to their efforts, and we're seeing results. My budget proposes putting nine more Troopers into the field. They risk their lives every day to protect Alaskans. They deserve our support.

OUR BUDGET IS PRUDENT

We have been blessed with high oil prices that the Department of Revenue estimates will leave us with a significant windfall for FY05. But I'm mindful that it's a temporary windfall.

As you examine our FY06 budget and our plan to spend the FY05 windfall, you will see that we are not on a spending spree.

My fiscal year 2006 budget proposes to spend less than either the constitutional spending limit that passed the House or the one approved by the Senate Finance Committee last year.

We propose to save 301 million dollars from the current year's projected windfall that could help balance next year's budget.

Apart from our commitment to invest in education, we propose to use this windfall for non-recurring expenditures.

LONG-TERM FISCAL SOLUTION

I'm as committed today as ever to delivering to Alaskans a state government that stands strong. A state government that is fiscally sound.

The businesses that we are asking to invest in Alaska need to be confident that our fiscal house is in order. And working Alaskans need the investment that business brings to this state to secure jobs.

My long-term fiscal solution is economic development.

The short-term fiscal challenge we face between now and when the gasline comes on line is real. It won't go away on its own, and we cannot procrastinate our way to long-term prosperity. It only makes sense to address it in good economic times.

I urge you to either pass the fiscal plan I presented last year, or come up with one of your own. Perhaps it would be a good topic for our young Alaskans to take on as a class projectboth at the senior high level and the university levelhow to come up with an acceptable solution to our financial dilemma.

I am proud that in large part because of our responsible budget management over the past two years, we have seen our CBR savings account actually grow to 2.1 billion dollars from the 1.9 billion it was when we first took office. Back then, many told us the CBR would be gone in three years. We proved them wrong with good fiscal management.

CONCLUSION

Collectively, no matter on what side of the aisle we reside, our challenge and fundamental responsibility is to work in concert on behalf of all Alaskans. I have personally observed in the U.S. Senate the consequences of Senate partisanship misdirected from constructive efforts to the role of obstruction. My job as governor under our state Constitution is to provide strong leadership. I must have your help and support, and you will have mine, as we jointly meet our obligation to Alaskans.

I have never been more excited about what the future holds for Alaska or more firm in my resolve to create an atmosphere in which Alaskans can fulfill their tremendous potential and achieve their dreams.

We are blessed with abundant natural resources.

We hold a simple shared belief that we, as Alaskans, can and must control our own destiny. My administration will continue to focus on improving education, ensuring public safety, strengthening families and communities, building roads, and creating jobsadding to the quality of living in America's last frontier.

We are changing the economic climate of Alaska by encouraging natural resource development and growth in other sectors of our state. "Open for business" actually means something now. It means new frontiers and new opportunities for Alaska families. It means work for those who want it, and help for those who truly need it.

It means every Alaskan can have hope for what the future will bring, instead of simply hoping for a future.

God Bless our Alaska.