Governor Chris Gregoire gave her state of the state speech in the state house chambers early this afternoon, inviting the legislature to "steer our state through one of the most difficult chapters in its history." (She cited sad statistics like the "more than 26,000 homeowners [who have] experienced the heartbreaking process of foreclosure."

Facing a $2.6 billion deficit (or a $12 billion shortfall for the $30 billion 2009-2011 biennium budget, as Gregoire framed it), the key portion of her speech came when she formally said she was willing to restore some cuts with new taxes.

"Later today I will present  a budget I can support. It counts on new revenue of about $750 million and cuts of almost $1 billion. The revenue will come from new federal dollars, new taxes or both.

Like you, I do not want to harm the economic recovery of our families or our businesses, but I also cannot abandon my values, eliminate the safety net for our most needy and cripple our economic future...

We must have a responsible, balanced approach of painful cuts and new revenue."

Gregoire detailed her dual approach of "streamlining state government" (cuts) and "investing in human potential today" (taxes).

On the cuts side she listed: Eliminating 73 boards and commissions; streamlining 26 Department of Licensing offices; closing 10 state institutions, including five correctional centers and two residential centers; and reducing the size of three juvenile centers.

Gregoire put the savings of closing the five correctional centers at $65 million over four years and the licensing office cuts at $3.5 million per biennium. But she did not list the savings on the other items. (I have a call in to her office for more specific numbers.)

She didn't identify the taxes or say what programs she would buy back, but she did list off specific casualties of a balanced budget (i.e., an all-cuts budget): Hospice care for 2,500 dying patients; health care for 70,000 people, including 16,000 children; and student aid for 12,300 low-income students. (It's expected that she will propose restoring these programs when she testifies later today in front of the Senate Ways & Means Committee.)

"The December budget was balanced," she said, referring to the all-cuts budget that she presented last month . "But it would abandon the values that define this state."

With $750 million in new money to buy some vital programs back, Gregoire is still looking at about $1 billion in cuts. (There are about $900 million in transfers to cover the $2.6 billion overall shortfall.)