In a wide-ranging State of the State address Wednesday night, Alaska Gov. Sean Parnell told Alaskans that much of the future of this state will be determined by the actions of legislators in the upcoming session.  

"Our future depends on the actions we take this session," he said. "How we approach these issues will determine what legacy we leave our children: a future of shrinking possibilities, or a future of greater opportunity. The decision is ours."

In front of both chambers of the Legislature, Parnell laid out his priorities for the upcoming legislative session, some of which involve the long-fabled natural gas pipeline, some education, his public safety initiatives and focus on sexual abuse, but the governor made clear that his main focus will be on oil taxes.

Parnell's address deviated from the tone of previous speeches. In last year's State of the State, Parnell was fresh off the campaign trail and election to his first full term, after inheriting the job from former Gov. Sarah Palin when she stepped down. Parnell had a rosier view then of the state's state. Last January, he said "Alaskans, the state of our state is measured by the condition of our liberty; by the soundness of our economy; and by the well-being of our families. Our state is on sound footing."

This address had a more storm-on-the-horizon under-note. While he did say that Alaska has "emerged as a rock of stability" in troubled times, he also said that unless the state reversed decline in oil production, "we will pay a stiff price in lost jobs, lost state revenues, and lost opportunities."

His fix? Decrease taxes on industry, which he claims will increase oil production. "If our policy is to grab all the tax dollars we can from declining oil production today, our children and grandchildren will have to fend for themselves," Parnell said.

In contrast, Rep. Beth Kerttula, who gave the requisite counter in a speech by the House Democrats following the State of the State, took the glass half-full approach. "Despite the national economy, Alaska is doing pretty well," she said, noting that there are more jobs in Alaska's oil and gas industry than any other time since construction of the trans-Alaska pipeline was completed.

Kerttula also pointed to what she called an "exploration" boom in Cook Inlet and the on the state's North Slope. Democrats will not risk all of that, she said, by "giving away billions in Alaska's oil wealth."

Stage set for a battle 

Thus the stage is set and battle lines drawn for what will likely be the debate consuming much of the three-month legislative session. Should Alaska lower taxes on the oil industry without firm commitments for development or jobs? Or should Alaska trust industry when it says that lowering taxes will increase production?

Indeed, as Kerttula said, the state of the state is sound. Because of high oil prices -- and because of the state's windfall tax enacted by Palin in 2007 -- Alaska brought in more than $10 billion in oil taxes and royalties in 2011. The state Department of Revenue forecasts that revenue in 2012 is expected to be more than $8 billion. Production, however, decreased by more than 6 percent in 2011 and is expected to decline nearly 5 percent in 2012. The decline is expected to continue in years to come.

Parnell's main agenda since election has been to lower the tax rate that Alaska is currently levying on oil production. The scope of the change he introduced in 2011 took some by surprise. Parnell was once an active supporter of the rise in production taxes, a regime known as Alaska's Clear and Equitable Share (ACES), signed into law by Palin when Parnell was lieutenant governor. ACES included a dramatic increase in the windfall profits tax on oil production. During contentious debates over the legislation back in 2007, he vigorously defended the tax on talk shows other media.

On the campaign trail in 2010, Parnell did mention possibly lowering taxes on industry -- "tweaking" -- he said, but was vague on details. Since winning his seat, however, he has gotten very specific. During the last legislative session Parnell -- who in the past worked and lobbied for oil companies -- proposed a bill that some analysts say lowers taxes by as much as $2 billion a year. Parnell's bill passed the Republican-dominated House but failed to pass the Senate last session.