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PORTLAND - With the state budget heading off a cliff and no one certain who's driving, Oregon's next governor will have to negotiate a narrow, delicate path to steer the state onto safer financial ground.

Democrat John Kitzhaber was whittling down a slim lead by Republican Chris Dudley as the last ballots were being counted statewide in the race for governor early Wednesday afternoon.

Whoever wins the race for governor will face a nearly evenly divided Legislature, a state budget gap expected to be as much as $3 billion in the next two-year cycle and an electorate that declined to give either candidate a mandate - or possibly even a majority - heading into the statehouse in January.

With nearly 1.3 million ballots counted, Dudley had just over 49 percent while Kitzhaber had a little over 48 percent of the vote. But many of the remaining ballots were in Multnomah County, where Kitzhaber was heavily favored among the large Democratic majority in Portland. Roughly one-fourth of the Multnomah County ballots had yet to be counted by Wednesday afternoon, and Kitzhaber was outpacing Dudley by nearly 3-to-1.

The picture of the next Legislature is still unclear, but Republicans have ended the supermajorities of Democrats in both chambers. The GOP has picked up four House seats held by Democrats, and could still win a majority as votes were counted in the final two races.

In the Senate, Republicans won at least two seats from Democrats, enough to end their supermajority but not enough to win a GOP majority.

The divided Legislature will make the major proposals by either candidate a tough sell.

Kitzhaber's plan to retrofit Oregon schools could face a pushback from Republicans loathe to spend money on public projects. Dudley's proposal to cut capital gains taxes from 11 percent to 3 percent for two years could face the same opposition that galvanized around support of business tax increases that voters approved in January.

The former two-term governor Kitzhaber and the political rookie Dudley have spent a combined total of at least $15 million on their campaigns this year. Dudley outraised Kitzhaber by about 3-2, according to filings near the end of the campaign, although that's not unusual for Republicans in governor's races.

Democratic Gov. Ted Kulongoski, leaving office after the two straight terms allowed by Oregon law, has described Oregon's budget situation as heading for a cliff.

Twice this year, as state finances deteriorated, he's called for across-the-board budget cuts that have resulted in teacher layoffs and a prison closing. He and a board of advisers have said sterner measures will be required next year.

Neither candidate has been willing to thoroughly describe what sort of changes Oregonians could expect and how wrenching they would be.

Pacific University political science professor Jim Moore said a sluggish turnout by independents hurt Dudley, because those independents tend to vote Republican. This year's governor's race is one of the closest in recent history, Moore said, and could mirror other state and national elections in which Democrats eked out victories by narrow margins.

``The common thread it shows is that Oregon is an evenly divided state in terms of party identification,'' Moore said. ``The rest of the nation looks at Oregon and says it's blue, blue and bluer, but it's actually pretty equally divided.''

Democrats hold a 200,000 voter-registration advantage over Republicans in the state, but independent voters make up about 20 percent of the electorate.

``A big number of unaffiliated voters are sitting this one out, and that hurts Dudley,'' Moore said.

Dudley's campaign centered on cutting business taxes. He said investors lack confidence in Oregon because of the business taxes, and that lack of confidence has contributed to the state's weak recovery from the Great Recession.

Kitzhaber's campaign focused on ``systems changes,'' for example, redesigning the state's education system under one governing body from preschool through postgraduate, and setting the state on a 10-year budget cycle.

Kitzhaber sought to deploy the Democrats' chief advantage in Oregon, the large registration lead that has grown in recent years, in part because of the 2008 campaign of President Barack Obama, who returned to Oregon in the final days of the campaign to urge Kitzhaber's supporters to get out the vote.


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