"Our overall mission is to position us for economic growth," Parnell said.

The governor has proposed $4.729 billion in general fund appropriations, not including money for federally funded programs. That is below the expected $5.236 billion in general fund revenues. If those totals hold true, the state would see a $507 million surplus at the end of the budget year.

"A higher oil price has resulted in more revenues. I would save the surplus and use part of it to forward-fund education and part to fund tuition assistance," he said.

Parnell proposed a tuition assistance program for Alaska students attending college or vocational schools in the state, and he suggests that some of the surplus go toward advance funding for schools.

Parnell announced his plan Dec. 14, a day before the required deadline for his release of a spending plan. Lawmakers will review and approve the budget in their spring 2010 session.

Legislators will write the budget using Parnell's proposal as a template, but the governor has a final say in spending through his line-item veto authority. The Legislature can override those, but it takes a required three-fourths vote, which is difficult to muster.

"I expect legislators to add to the budget, but I don't want to say where the line is," on an amount that will be acceptable, Parnell said. "I want to communicate my expectations up front, however."

One source of tension will be in school construction. Parnell included $24.8 million in his budget to fund eight major school maintenance projects, drawing from a list of priority projects maintained by the Department of Education.

New schools also are needed, particularly in rural areas, but those would be very costly.

"I will entertain a discussion with legislators about new schools, but the first three projects on the DOE list total $125 million," he said.

The major maintenance projects are mainly in urban schools, while most of the new school needs are in rural districts.

Overall appropriations total $10.46 billion, including programs funded with federal money and the Alaska Permanent Fund dividend. Total funds in the fiscal 2010 budget are 8.56 percent above current year spending, Parnell said.

Almost all of the federal funds, for programs like highways and Medicaid, are simply passed through the state budget. The Legislature and governor have little control over those, except for state funds required to match federal dollars.

State general fund appropriations, which legislators and the governor do control, reflect less of an increase under Parnell's budget proposal.

State agency operations are up 2.34 percent, which basically means agencies are holding the line on spending when inflation is taken into account. State formula spending programs, like education and Medicaid, where budgets are linked to formulas set out in statute, are showing higher increases.

Support provided to schools around the state, for example, is increased 5.6 percent. State contributions to employee retirement funds are increased, from $284 million to $357 million. Legislators agreed previously to increases in retirement contributions to address a projected $8 billion deficit in long-term retirement benefit obligations.

State debt service on bonds and other obligations also are increasing as the state moves more toward financing infrastructure and school improvements with various forms of debt rather than cash appropriations through the state capital budget.

Parnell did propose an increase in state funds for capital spending, but it would mainly offset expected losses of federal funds in the capital budget in fiscal 2011. Total capital spending, federal and state funds combined, are proposed at $1.472 billion in Parnell's fiscal 2011 budget, up slightly from $1.443 billion in the current year.

The capital budget includes $85.4 million in matching funds needed to bring in about $700 million in federal money for highways, airports and water and sewer projects around the state.

Included also in the capital budget is $100 million as the first installment of a multi-year $500 million plan to tackle deferred maintenance on infrastructure, Parnell said.

The operating budget also includes increases in public protection, particularly in programs to combat domestic violence and sexual assault, two of the governor's priorities.

Parnell's budget also includes $150 million to repay TransCanada Corp. and ExxonMobil Corp. 50 percent of their costs in preparing for a gas pipeline open season in 2010. Those funds are obligated under the contract the state signed with TransCanada last year.

The Denali pipeline group led by BP and ConocoPhillips is pursuing a rival gas pipeline plan with no state funds.

Parnell's budget also includes $180 million in expected payments to oil and gas explorers under an investment tax credit program intended to spur exploration. This money would cover only the direct cash refunds the state would pay the explorers.

The state also helps pay indirectly for other petroleum exploration and development work if companies choose to apply the credits toward their state production tax liability, which means the state receives less revenue from the tax.

Like the TransCanada obligation, the Legislature has little discretion in making these payments since the incentive program is authorized in changes lawmakers made to the oil production tax law in 2006 and 2007.