Her campaign says Rossi should pull the 30-second spot from the airwaves.

But that isn’t going to happen – any more than Gregoire was going to alter an ad earlier this month that oversimplified Rossi’s stand on stem-cell research.

Neither side is letting up as the rivals campaign leading into today’s third of five debates in an election that’s shaping up to be as close as their 133-vote photo finish four years ago.

Recent polls show the race is neck and neck.

The new Rossi ad hits on what might be the central theme of the campaign – how the state collects and spends taxes. But it falsely implies the state has a deficit today – and that Gregoire is proud of it.

In fact, the latest state revenue report issued this month showed Washington still has a surplus of $529 million, which could grow to more than $800 million if Gregoire’s orders to cut $290 million in spending over the next year bear fruit.

Gregoire’s budget adviser and her campaign have pointed out that 30 other states are already in the red, by contrast. Which is where Gregoire comes in with her “proud of it” remark. But Gregoire isn’t telling the whole truth, either.

It’s clear from nonpartisan legislative staff reports that the Legislature faces a projected $3.2 billion shortfall in January for the budget cycle that begins July 1, 2009. She and her staffers have acknowledged a projected shortfall of about $2 billion, but not much more.

Gregoire and her budget writers have avoided talking about that whenever possible – insisting for months the shortfall was not a certainty because the state had several revenue forecasts ahead of it.

That’s where the Rossi attack ad makes its hay – by declaring the state now faces a $3.2 billion shortfall. The ad asks: “Is she dishonest or is she in denial?” Then it quotes Gregoire accurately as saying: “We do not have a deficit today.”

Rossi campaign spokeswoman Jill Strait defended the ad, much as Rossi himself has argued that Gregoire isn’t being responsible with the state’s checkbook.

“Saying you have a surplus today is like saying you have $529 in your checking account but you also have over $3,200 worth of bills coming” due, Strait said in an e-mail. “At home, do you continue to say you have money in your bank account right until your first check bounces? The incumbent’s reckless spending got us into this mess, and we can’t trust her to get us out of it.”

A Survey USA poll reported Sept. 23 showed Gregoire leading Rossi by 50 percent to 48 percent, which is inside the margin of error. A Rasmussen Poll from this month showed Rossi leading by six points.

The campaign is well into record territory for fundraising and spending. The latest Public Disclosure Commission data show that Gregoire has raised a record $10.2 million, while Rossi has raised $9.1 million.