JUNEAU -- Gov. Sean Parnell used his first State of the State speech Wednesday night to criticize the federal government and defend his proposals for oil company tax breaks and a big new college scholarship program based on grades rather than need.

The Republican governor's speech comes as many legislators in his own party say he's not doing nearly enough to reduce how much the state taxes oil company profits. Parnell is getting heat on the other side, too. Democrats say he's trying to give tax concessions to the oil industry that aren't needed.

In his address to a joint session of the Legislature, Parnell said his approach to offer tax rebates as an incentive for drilling in Alaska would lead to more jobs and isn't a giveaway, as he described proposals to lower the tax rate that some Republican legislators have talked about.

"My oil tax credit proposals are just that, because companies must invest here in Alaska, create Alaskan jobs and drill more wells before qualifying for these new tax benefits. I don't support giving tax breaks without an Alaska work commitment," he said.

Parnell's tax credits could cost the treasury hundreds of millions of dollars, and Democratic legislators have argued there's no need for them and no guarantee they wouldn't just reward companies for drilling in existing fields they would have explored anyway.

Parnell said in his speech he's concerned about jobs and oil production, given the tough economy.

Asked by reporters during an interview at the governor's mansion how he's sure his tax breaks wouldn't go for work the companies would do anyway, Parnell said there's been success with a different kind of tax credits the state offers for companies engaging in exploration for new fields.

"I don't have any way to tell you except that we've seen it in the exploration arena ... (and) the in-field drilling credits are going to do the same thing," Parnell said.

Anchorage Republican Rep. Craig Johnson, who has proposed a vastly deeper reduction in state oil taxes, said after the speech that he likes Parnell's statements about the need for tax changes and for the need for money to stay in Alaska. He said he plans to put Alaska hire language in his bill.

Rep. Les Gara, D-Anchorage, said Parnell hasn't convinced him of the need for more tax breaks, especially since an oil tax provision that cost the oil companies $150 million last year just expired and all signs are it won't be renewed.

Senate Majority Leader Johnny Ellis, an Anchorage Democrat, said he was disappointed Parnell didn't talk about working with legislators on their desire to make his proposed new college scholarship program at least partially based on financial need, rather than just a student's grades and test scores.

Parnell used his State of the State speech to promote his proposal for the "Governor's Performance Scholarship." Alaska high school students who take four years of math, science and English, as well as three years of social studies, could get the state to pay for half their in-state college or job training tuition if they have a "C-plus" grade point average. A "B" average could earn 75 percent tuition and an "A" average the full tuition.

"Merit scholarships work. States with merit scholarships have measurably higher graduation rates, measurably higher academic achievement, and measurably higher post-secondary completion," Parnell said in his speech to the Legislature.

Legislators from both parties have balked at Parnell's proposal, saying they want to see it at least partially based on whether a student needs the help. Parnell told reporters Wednesday he's not interested in making it a needs-based scholarship.

"I think every Alaskan has an opportunity for a merit-based scholarship including those who have need for financial aid," he said. "So I think even the young people with needs, who financially have those needs, will qualify for this scholarship."

His speech included much rhetorical fist-shaking at the federal government, complaining about the federal health care legislation, the designation of critical habitat for polar bears, national oceans policy and other examples of what he called federal intrusion.

"The federal government's actions often seem at war with Alaskan interests," Parnell said.

He said he's asked the attorney general to make recommendations for action on the health care package. Asked by reporters what he had in mind, Parnell said the state might sue over the move by U.S Senate leaders to exempt Nebraska from paying for an expansion to its Medicaid program, as they were courting Democratic Sen. Ben Nelson to be a needed vote for the health care legislation. Other states have already been threatening such a lawsuit.

There wasn't a lot of enthusiasm in the response from legislators during Parnell's speech, although his talk of more state spending on construction projects to boost the economy drew wholehearted applause. His anti-federal government talk was popular with Senate Republican leaders discussing the speech afterward, including Senate President Gary Stevens, who called the address "quite outstanding."

Anchorage Democratic Sen. Hollis French, who also is running for governor, said the state is at a crossroads with high energy costs and he didn't see the needed urgency in Parnell's speech. He said he found the governor "almost dismissive" of efforts to build a smaller in-state natural gas pipeline to bring North Slope gas to the Railbelt, which many legislators see as a backup if the pipeline to the Lower 48 doesn't come through.

Parnell said in his speech that "we don't have to wait for a large diameter pipeline to get gas to our communities," and that he's appointed a new project manager to evaluate options for in-state gas. The governor's last project manager, Harry Noah, resigned amid what he said was frustration over a "civil war" between competing plans for Alaska energy projects.

Parnell said the Alaska Gasline Inducement Act has given the state good progress in the effort to build a natural gas pipeline to the Lower 48. His comments come as many Republican legislators grow increasingly vocal in their criticism of the AGIA approach to a gas pipeline and say it's not going to work

"Getting pipe in the ground will take what Alaskans are known for, meeting the challenges together, problem solving, not rock throwing," Parnell said in his speech.

Parnell's also highlighted things he's asking the Legislature to do, including funding a new $75 million state crime lab that many legislators consider too expensive, increased funding for domestic violence shelters and the hiring of 15 new village public safety officers. The governor said he wants the state to provide a corporate income tax credit for tourism companies that contribute to an Alaska tourism marketing program.

Parnell promoted his crime legislation, including doing away with suspended sentences for people convicted of human trafficking or child pornography and allowing tougher sentences for those who sexually assault a victim impaired by drugs or alcohol. The governor also reiterated his call for the Legislature to suspend the state's eight-cent-a-gallon tax on gasoline.