OLYMPIA — Heading into her last year in office, Gov. Chris Gregoire on Monday proposed asking voters for the first state sales-tax increase in 28 years to help deal with a $2 billion budget shortfall.

The Legislature will convene a special session next Monday to start work on filling the hole in the current two-year budget.

Gregoire wants lawmakers to put a referendum on the March ballot asking for a temporary half-penny boost in the sales tax, which would bring in nearly $500 million a year. The tax would expire after three years and largely would go toward education, with smaller amounts for public safety and social services.

The governor's proposal came after she outlined more than 160 proposed budget cuts to fill the gap. The cuts included eliminating state-subsidized health insurance for the working poor; reducing the K-12 school year by four days; and allowing early release of prisoners who are at low to moderate risk of reoffending.

Some reductions would be rescinded if the tax increase is approved.

"I have seen the ramifications of the cuts," Gregoire said. "I can't live with it."

Senate Minority Leader Mike Hewitt, R-Walla Walla, said Gregoire is trying to frighten voters into supporting a tax increase.

"I think the governor sent Chicken Little out to scare people that the sky was falling, and she probably accomplished it," Hewitt said. "I don't agree that we should rush out and impose a tax on taxpayers. This is not the proper time to be doing these things."

Gregoire contends that three years of budget cuts have left only bad choices for finding billions more in savings.

"This is not about scare tactics. I'm being honest with the people of the state of Washington. I'm not misleading, misinforming, distorting anything," said Gregoire, who announced earlier in the year that she's not running for re-election.

She planned to tour the state starting Tuesday to discuss her proposals, with stops in Vancouver, Yakima, Spokane and Seattle.

If voters approved the increase, Washington would be tied with five other states for the second-highest state sales tax, with a 7 percent rate, according to the state Department of Revenue. Only California would have a higher rate, at 7.25 percent.

Washington, unlike California, is one of seven states without an income tax.

Combined with local sales taxes, King County residents within Sound Transit boundaries would pay a 10 percent sales tax. Outside the boundaries, consumers would pay 9.1 percent.

Groups that likely would be helped by a tax increase applauded the governor's proposal.

"I'm both pleased and grateful that Gov. Gregoire has chosen to take a balanced approach to addressing the present fiscal crisis," University of Washington President Michael Young said in a statement.

Gregoire has proposed cutting about $160 million from higher education, including a 17 percent reduction in state funding to the UW, Washington State University and Western Washington University. Community and technical colleges would be cut by 13 percent.

She would "buy back" those cuts if the sales-tax proposal passes.

She also would use the additional revenue to prevent a $152 million cut in payments to property-poor school districts and to keep from shortening the school year by four days. The shorter school year would result in a 2.2 percent pay cut for teachers beginning in the 2012-13 school year, saving the state $99 million.

Proposed reductions to several social services also would be avoided with the sales-tax increase, as would some cuts to the Department of Corrections, including Gregoire's plan to release certain prisoners 150 days early.

House and Senate Democrats lately have sounded increasingly supportive of tax increases.

"I am very heartened that she included a revenue package in her proposal," House Speaker Frank Chopp, D-Seattle, said in a statement Monday. "We owe it to our school children, to our citizens with disabilities, and, frankly, to the future of our state to have a discussion about alternatives."

Senate Majority Leader Lisa Brown, D-Spokane, said, "I think we are going to try to find the votes in the Senate" to send voters a tax package. But she said it's not clear what taxes might be included or how much money they would raise.

House and Senate Republicans, though, criticized Gregoire for proposing taxes, arguing there are many changes the state still can make to save money.

"Education, public safety and services for the most vulnerable are our highest priorities and should not be held hostage in an attempt to extort a tax increase out of the voters," House Minority Leader Richard DeBolt, R-Chehalis, said in a statement. "How can we ask taxpayers who don't have jobs to pay higher taxes to state agencies that are still giving pay raises to some employees?"

Gregoire's sales-tax proposal is part of a broader package proposed by the governor that would raise $835 million in additional revenue to help balance the state budget.

Other proposals recommended by Gregoire would bring in an estimated $341 million in fiscal year 2013, which starts July 1.

Most of those, though, would require a two-thirds vote of both the House and Senate to pass — a near political impossibility.

State law requires either a two-thirds vote or voter approval to boost taxes.

Gregoire recommended increasing the business-and-occupation (B&O) tax rate on oil companies and financial institutions with windfall profits, repealing the sales-tax exemption for purchases made by nonresidents, and imposing a 5 percent luxury tax on motor vehicles worth more than $50,000, among other changes.

However, the governor said she holds out little hope the Legislature would muster the two-thirds vote needed for those increases.

"I'm not optimistic," she said, adding that's why she's adamant about sending voters the proposed sales-tax increase.

The Associated Press contributed

to this report.

Andrew Garber: 360-236-8266

or agarber@seattletimes.com