UPDATE: (5:35 p.m.) In testimony before the Senate Ways & Means Committee this afternoon, Gregoire said she wants to "buy back" $780 million in proposed budget cuts with new revenue. (That's higher than the $750 million figure she used in her State of the State speech, and that we, in turn, used in an earlier headline. Guess the governor was rounding down a bit.) Gregoire gave few details, but appears to be counting mostly on new federal money and closing a few tax loopholes mostly to tax out-of-state companies.

In her State of the State address to a joint session of the state House and Senate, Gov. Chris Gregoire today called for a "responsible, balanced approach of painful cuts and new revenue" to close the state's $2.6 billion budget gap.

Gregoire said the state cannot live with an all-cuts budget like the theoretical one she presented in December. That no-new-revenue budget, which she was required by law to deliver, called for elimination of health care, scholarships and preschool for poor families.

Instead of that approach, Gregoire said she'll deliver a budget proposal to the state Senate Ways & Means Committee this afternoon that will rely on $750 $780 million in new revenue and $1 billion in cuts.

The new revenue will come from a mix of federal aid and new taxes, Gregoire said. She did not go into detail on any tax increases during her 40-minute speech.

In fact, Gregoire said she'll propose some tax incentives to promote job growth.

Gregoire said she'll propose a jobs program aimed at creating as many as 40,000 new jobs this year. "Jobs are the way out of this recession," she said.

To encourage new hiring, Gregoire said she'll propose a tax credit for small businesses that hire a new full-time position.

Gregoire also said she'll direct state agencies to enact a "green building" program, retrofitting state buildings to put people to work, reduce the state's carbon footprint, and save $60 million in energy costs.

The governor did not go into detail on her new programs, but may offer more information when she presents budget details later at the Ways & Means Committee.

Recognizing that many "hard-earned" but "time-limited" development permits have sat unused because of the recession, Gregoire said she'll order state agencies to extend those permits for two years.

Gregoire said state government must also be streamlined, boasting that she'd already eliminated 73 boards and commissions. This session, she said she'll target 78 more for elimination.

The governor also asked that lawmakers approve her plan to close all or part of 10 state institutions, including five prisons. She has pledged to do that without releasing any prisoners early by consolidating inmates in more efficient buildings.

"Now is the time to have the courage to close institutions that may be an important fixture in a community, but are no longer cost effective, or whose services are no longer needed or can more effectively be provided elsewhere," Gregoire said.

Gregoire repeated that she does not support the all-cuts budget she was required by law to deliver last month.

That budget, to close a $2.6 billion budget hole, would eliminate subsidized health care for 70,000 individuals and 16,000 children. It would eliminate pre-school for 1,500 children and grants for 12,300 low-income college students. All-day kindergarten also would be chopped.

Also eliminated would be hospice care for 2,500 dying patients and maternity care for 50,000 at-risk moms.

"The December budget was balanced, but it would force us to abandon the values that define us in this state: fairness and compassion."

When she presents her budget this afternoon before the Senate panel, Gregoire said she'll call for avoiding $750 million of those cuts with a mix of federal aid and new taxes.

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

Gregoire said she wants to "preserve and enhance" her pre-school initiative, all-day kindergarten and restore funding for state grants to low-income college students.

In a nod to the rash of recent police killings, Gregoire pledged to deliver a package of reforms to the state bail system and work on supervision after inmates are released.

Gregoire urged legislators to "leave the partisan politics to elections" and work together.

"It is not going to be easy," Gregoire acknowledged. "The decisions that we have to make will not always be popular, but we have a duty to our struggling families and businesses to help build a bright future for Washington."