Democratic Gov. Chris Gregoire, griping about "gloom and doom" critics who accuse her of overspending, on Tuesday approved $291 million in new state spending and said if deficits come, state government will tighten its belt.

A big fat tax increase is more like it, said her Republican challenger, former Senate budget Chairman Dino Rossi.

"You can bank on it," Rossi said as the two offered a prelude of their campaign clash that ramps up next week when Gregoire officially joins the race.

"The fiscal irresponsibility being displayed in Olympia will result in Christine Gregoire raising your taxes if she's elected. The only question is which taxes and how high," Rossi added.

Gregoire, anticipating that broadside, said Washington's economy is remarkably resilient, but that if national problems do cause a slowdown here, "We will manage our way out of it."

The governor used her veto pen to trim the Democratic Legislature's spending increases by $15 million, but largely let their supplemental budget stand.

The new spending, covering everything from flood relief to teacher pay, will be added to the current two-year, $33.4 billion state operating budget.

Gregoire's minor vetoes boosted the state's projected reserves to $850 million, about $100 million above levels lawmakers first proposed last month.

But the national economy is weakening and the state faces a potential deficit of more than $2 billion next year. Three more revenue updates are due before the next budget is written and could widen the gap even more.

The state Revenue Forecast Council recently chopped more than $420 million from projections and minority Republicans say the state's reserves could evaporate.

House Republican budget leader Gary Alexander of Olympia said the governor has set the state up for tax hikes or big spending cuts, or both.

Gregoire, who launches her re-election campaign in her hometown of Auburn on Monday, said the budget reflects Washington citizens' priorities of education, community safety, a clean environment, good health care and protection of children and vulnerable adults.

The budget includes a 4.4 percent raise for teachers and community college staff, including both a cost-of-living raise and a half-percent catch-up raise, and continues the phase-in of free daylong kindergarten.

The plan adds money for job programs, housing, health care, mental health, storm relief, public safety and environmental programs.

Gregoire said the new spending should actually strengthen the state economy and "help insulate" the state by producing healthier, better educated workers, preserving the environment and creating a good business climate.

"Now is not the time to abandon our investment in the growth of Washington's economy," she said.

She acknowledged there could be stormy days ahead, but insisted she's comfortable with the new budget levels and with Olympia's ability to cope.

"I know that for many businesses and families, the national economy is very threatening. Certainly Washington is not immune to the U.S. economic conditions and people in the state are understandably anxious."

The state economy is diversified and "faring a whole lot better" than at least 30 other states, she said.

The $850 million cushion is among the largest in Washington's history, she said.

During debate last month, Senate Republicans' budget leader Joe Zarelli of Ridgefield said conservatives don't specifically object to items in the new budget, just the overall spiral of spending.

The state is now spending $1.7 billion more than it will collect in revenue, and that can't be maintained without tax hikes or big spending cuts, he and other Republicans maintained.

Senate Republican Leader Mike Hewitt of Walla Walla said Gregoire and the Democrats have boosted spending by 34 percent over the past four years.

Democrats defended the budget and level of reserves.

"We always have challenges to deal with - we'll be all right," said House Speaker Frank Chopp, D-Seattle.

The bill-signing ceremony included Gregoire kudos for House Appropriations Chairwoman Helen Sommers, D-Seattle, a 36-year veteran of the House who is retiring.

The governor also signed a supplemental construction budget of $118 million, bringing the two-year total to $4.5 billion.

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The operating budget is House Bill 2687. The construction budget is House Bill 2765.

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On the Net:

Legislature: http://www.leg.wa.gov

Governor: http://www.governor.wa.gov