The race for Washington governor is considered one of the closest in the country, pitting two-term Republican Attorney General Rob McKenna against Democratic ex-Congressman Jay Inslee. Here's where the candidates stand on key issues.

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Balancing the budget

The Legislature faces a two-year shortfall of at least $400 million, not counting new school funding required to meet a state Supreme Court ruling that said education is inadequately funded.

Inslee: Streamline government through “lean” measures that seek to identify and eliminate inefficiencies; boost employment and economic growth; slow the growth in health-care costs through preventive and managed care.

McKenna: Streamline government through use of lean management and attrition to shrink the state payroll; control health-care-cost growth; boost revenues by reducing regulations on business to spur economic growth.

Tax increases

Both candidates oppose increases in general taxes, such as the state sales tax. But they support ending some narrower tax breaks.

Inslee: Close tax exemptions that are no longer delivering jobs and other public benefits. He says all tax breaks should have expiration dates that trigger review. He mentions a tax break on sales of semen for artificial insemination as an example of exemptions that could be ended.

McKenna: Close tax exemptions that are no longer delivering jobs and other public benefits. He says he would look first at any loophole favoring an out-of-state company over one in Washington.

Tax cuts

Both favor business-tax cuts.

Inslee: Give small companies a tax credit for adding employees, capping the cost of that program at $8 million. He would allow fledgling companies not yet profitable to resell research-and-development tax credits.

McKenna: Exempt more than 118,000 small businesses from the state business and occupation tax. He isn’t promising to fully enact the exemption immediately, because it could cost state coffers more than $250 million a year.

State worker pay, benefits

Both support collective bargaining, which under the law is done by the governor’s labor-relations office and union negotiators. Lawmakers can reject contracts but not make changes. Both also want to slow the growth in state costs for employee health care.

Inslee: Advocates managed care for chronic illnesses, preventive care and incentives for healthful life choices. He doesn’t specify what share of premiums workers should pay but says he’ll seek to lower the overall growth in costs borne by workers and taxpayers.

McKenna: Put the Legislature directly into the collective-bargaining equation with the governor. He also wants to change the seniority-based pay system to focus more on performance and merit pay. McKenna wants incentives for enrolling in health savings accounts or consumer-driven plans that have lower premiums and higher out-of-pocket costs. He has supported raising the employee share of premiums for traditional plans to near 25 percent, up from 15 percent today.

Restructuring government

Both have ideas for change.

Inslee: Create an economic competitiveness and development office. He says lean management can strip out wasteful steps and delays in decision-making by agencies that add costs to businesses.

McKenna: Open the state system of workers’ compensation to competition from private insurance companies. He singles out data services, printing and facilities maintenance as services that could be opened to the private sector.

Transportation revenue

Both favor additional voter-approved taxes for Washington roads, ferries and mass transit.

Inslee: Supports sending a tax measure to the ballot to raise money for transportation. Inslee says he would target 2013 or 2014, although he has also argued public trust in government needs to be won before going to the ballot. He hasn’t committed to making tolls part of the package.

McKenna: Supports sending a tax measure to the ballot in 2013 or 2014 to raise money for transportation. He sees tolling and public-private partnerships as pieces of the package.

College spending

Both candidates call for increased higher-education spending. Both also favor making it easier for university researchers to turn breakthrough ideas into commercial ventures to produce new tax revenues for the state and income for research universities.

Inslee: Says restored funding should be tied to production of degrees in fields that reflect demands of the economy. He wants to slow tuition increases but says he is not ready to take back tuition-setting authority from boards of regents at universities.

McKenna: Would allocate a share of the extra money generated by the state’s recovering economy to replenish funds cut in recent years. He says ultimately the state should pay half the cost of a college education, with students paying the other half. (The state currently pays 30 percent.)

Driver’s licenses

for illegal immigrants

Candidates differ on whether Washington should remain one of two states that grant regular driver’s licenses to those in the country illegally.

Inslee: Supports Washington’s current system, which doesn’t require drivers to prove their legal residency in the country to obtain a license; says the state has properly tightened rules to prove that drivers live in Washington.

McKenna: Wants to require drivers to provide Social Security numbers but says those who don’t could get a license that can’t be used for identification purposes.

Money for K-12 schools

The state Supreme Court ruled this year that the Legislature isn’t adequately funding basic public education. Lawmakers have passed bills that outline improvements to schools over time. Costs in the next two years alone could top $1 billion.

Inslee: Says no new taxes are needed but that the gap can be bridged with economic growth, efficiencies in government and ending tax breaks.

McKenna: Bridge the gap by devoting expected growth in state revenues to education while limiting growth in other parts of state government. He also doesn’t support new taxes.

Coal exports

Neither has taken a firm position on proposals to build coal-shipping facilities near Longview and Bellingham.

Inslee: Expresses interest in the jobs that might be created by the proposed coal-shipping facilities but says these should receive full environmental review from the federal government.

McKenna: Also says proposed coal terminals should receive full environmental review. McKenna says if they pass the review, Washington should accept the projects and the resulting jobs.

Medicaid expansion

Candidates differ on whether Washington should expand Medicaid coverage under the federal health-care law. The federal government would initially pay all of the costs for new enrollees, with the state gradually picking up a share.

Inslee: Favors full expansion as part of the health-care law, arguing state costs are minimal through 2020. He also argues that adding people to coverage rolls reduces the cost of uncompensated care at hospitals, which he said otherwise is passed on to insurers and becomes a $1,000-a-year “hidden tax” on families that do have coverage.

McKenna: Wants to wait to determine Medicaid’s costs and affordability (in light of state school-funding obligations) before committing to fully expanding it in 2014.

Legalizing marijuana

The candidates agree.

Inslee: Opposed to Initiative 502; cites conflicts with federal law if the measure passes.

McKenna: Opposed to I-502; cites conflicts with federal law if the measure passes and risks to getting medical marijuana to patients under current law.

Allowing charter schools

in Washington

The candidates differ.

Inslee: Opposes Initiative 1240; says he favors giving grants for innovative school ideas instead.

McKenna: Supports I-1240 to provide an option to parents of kids in struggling schools.

Same-sex marriage

Candidates differ.

Inslee: Supports Referendum 74, saying same-sex couples should have equal rights.

McKenna: Opposes R-74 on faith grounds but says he’ll implement what the public decides. He supports the current domestic-partnership law.

Two-thirds vote

for tax increases

Candidates differ.

Inslee: Opposes Initiative 1185 as obstruction to majority rule.

McKenna: Supports I-1185 requiring supermajorities in the Legislature for tax increases.

Federal health-care overhaul

Inslee: Voted for the Affordable Care Act as a congressman in 2010 and says he is committed to implementing it at the state level.

McKenna: Joined other attorneys general in a lawsuit to overturn the federal law. He says he sought only to block the law’s mandates that individuals buy private-insurance policies and that states expand Medicaid. After the Supreme Court upheld the law, McKenna said he favored keeping insurance exchanges and using them to steer people from Medicaid into the private market.

Health-care costs

Both say controlling medical inflation — for state workers, clients of health-care programs and all consumers — is a top priority.

Inslee: Proposes encouraging managed care, preventive care and incentives for healthier behaviors that reduce medical costs.

McKenna: Favors government subsidies to encourage use of private insurance and incentives such as health savings accounts that give consumers a reason to use medical services prudently.