PROVIDENCE, R.I. -- Governor Carcieri on Tuesday reluctantly signed into law a $7.8-billion budget package that raises Rhode Island's gas tax by 2 cents per gallon, cuts millions of dollars from cities and towns, and trims pension benefits for thousands of state workers and teachers.

If he had the option, the governor said, he would not have signed the plan, which boosts overall government spending by $900 million, or 13 percent, for the coming year, relying heavily on federal stimulus funds to plug the state's largest budget hole in decades.

Carcieri signed the budget bill, for the fiscal year that begins Wednesday, in the privacy of his office. His staff waited hours to issue a statement.

"My signing this budget is not an endorsement of it in its entirety. I had intended to allow this budget to become law without my signature, however it was delivered to my office too late to do so," Carcieri said in a letter to House Speaker William J. Murphy. "I am signing for this reason: over $40 million of state funding, plus hundreds of millions in federal ... funds are at risk if the budget does not become law before July 1."

Indeed, looming deadlines linked to savings proposals eliminated much of the political jockeying that usually accompanies budget feuds between the Republican governor and the Democrat-dominated General Assembly, which crafted the final version of the budget.

"Unfortunately, the General Assembly chose a short-sighted scheme with narrow political goals that addresses some but defers more far-reaching, difficult choices for yet another year," Carcieri said in a statement, blasting an unspecified cut of $57.6 million across all state departments and $5 million from consultant contracts.

In a brief interview, the governor warned that staffing cuts or furloughs are possible.

"To come up with another $70 million is going to be very painful, frankly, on state employees," he said. "That means we're going to have a very difficult time living with the contractual agreements we have."So we're already starting discussions with labor because we're going to have to either reduce the work force further with something that winds up being compensation reductions. We're not going to find $70 million without some fairly serious stuff.

But the governor noted that the tax-and-spend plan could have been worse for Rhode Island's taxpayers.

On the same day that Massachusetts Governor Patrick signed a budget that raises the Bay State's sales tax by 25 percent, Carcieri signed a budget that avoids raising sales or income taxes.

Lawmakers rejected Carcieri's push to cut the state's corporate income tax, but left untouched a tax break for high earners known as the alternative flat tax. The most significant tax changes include the gas tax bump -- which diverts millions of dollars to the beleaguered Rhode Island Public Transit Authority --- and the elimination of preferential treatment of capital gains.

"I'm pleased to learn that the governor has signed the budget. We did not increase broad-based taxes and we further reduced spending from the governor's March proposal, which at the end of the day was $125 million out of balance," said House Finance Committee Chairman Steven M. Costantino, generally considered the architect of the legislature's budget. "I note that the governor finds the spending cuts to be a challenge and I hope the administration is up to it."

There was little reaction across Smith Hill following Carcieri's move, which was expected as the state closes a $590-million budget hole, a gap equal to almost 20 percent of state-only spending.

There are a handful of increased fees, including one for dock permits and another for the expungement of criminal records. But the budget largely avoided threatened cuts to programs for thousands of seniors, poor and disabled Rhode Islanders.

Cities and towns will lose $55 million -- all that remained of the general revenue sharing program -- and their school districts will lose $26 million from the $690 million provided in the enacted budget for fiscal 2009. That includes the elimination of $5.8 million for professional development, and a $20.3 million reduction equal to projected pension savings.

The outcome would have been far worse without federal stimulus dollars.

The budget cuts $33.9 million in state funds from local education, but replaces it with $35.6 million in federal stimulus dollars that won't be available for more than another year. State officials have expressed concern about "an exit strategy" once the funds dry up.

On pensions, despite threats of lawsuits by public employees unions, the budget adopts age 62 as the new "target" age for retirement for state workers and teachers. It is a hugely complicated formula, but simply put: the farther away from retirement the employee is, the higher the age requirement.

Carcieri said the budget doesn't go far enough.

"It was an opportunity missed," he said. "I'm not proud of it because I think it's just going to leave us continuing to struggle."