Gov. Chris Gregoire and Republican challenger Dino Rossi hammered each other Wednesday night over the budget, the economy, health care and education in a crisp, fast-paced debate before a packed and partisan crowd at Yakima’s Capitol Theatre.

It was the third of five scheduled gubernatorial debates between the first-term Democratic incumbent and the former state senator, who is trying for the second time in four years to end Democrats’ more than 20-year control of Olympia’s top job.

The candidates are nose-to-nose in the polls in the run-up to what has become a grudge match after Rossi lost the 2004 race by only 133 votes after three tallies and an unsuccessful court challenge by Republicans.

While largely civil, the candidates never looked each other in the eye and there was no conversational moment when they engaged each other on the issues. Instead, throughout the one-hour event they shook their heads at one another’s comments.

Each accused the other of being beholden to powerful special interests. According to Gregoire, Rossi’s allegiance is to the Building Industry Association of Washington, a conservative association of contractors that has consistently accused Seattle-area Democrats of stealing the 2004 election.

For her part, Gregoire does the bidding of the labor unions, according to Rossi, especially to state employee unions that are negotiating a pay increase with her administration.

Gregoire became visibly angry when Rossi casually tied the early release of 31,000 felons during her administration to the murder of a police officer.

“Anybody who thinks I let felons out of prison early — and they killed a police officer — it’s an outright lie,” Gregoire, 61, said.

Rossi, 48, took a lot of his lines from his previous playbook, calling Gregoire fiscally irresponsible, saying she “recklessly gambled the economic boom would never taper off.”

He likened her spending to that of former Gov. Mike Lowry, a Democrat known for big ideas and big social programs.

“She’s outspent Mike Lowry. You’d have to lay awake nights figuring out how to outspend Mike Lowry,” Rossi quipped.

But Gregoire said the state has caught the same cold that’s spread across the nation, which has legislators staring at a projected $3.2 billion budget for the upcoming biennium.

“Our nation is truly facing unprecedented economic challenge,” she said. “No corner of America has escaped the mess created by Wall Street.”

Neither candidate said how they would have voted on a bailout bill if they were in Congress. But Gregoire said she is glad the Senate has stepped up to revive the rescue.

“We can't afford any further delays. We need to make sure there’s accountability on Wall Street and for those CEOs. We need economic security here for our families.”

Gregoire defended her administration’s expansion of children’s health care and attacked the Republican’s position that the state requires too much coverage, such as cancer screenings.

“Do you want to get rid of mammograms? Do you get rid of prostate screenings? Deregulation didn’t work on Wall Street and deregulation of health care in the state of Washington would be a disaster.”

Rossi countered that health-care consumers should have market choices.

“We need to have options. We have the worst options in terms of health care this side of the Mississippi. You have a bureaucrat in Olympia deciding for you what you want instead of letting you decide for yourself.”

Gregoire touted her record on expanding water supplies in Eastern Washington.

“For the first time in three decades, we were able to deliver new water to Odessa and the Tri-Cities. We’re looking now at the Ahtanum,” she said.

But Rossi attacked the Democrats’ unwillingness to change state water law that threatens growers’ water rights if they don’t put the water to beneficial use.

“Use it or lose it, that’s a problem,” he said. “If you don’t use the water, you lose the water. We should be encouraging, not discouraging, conservation. People understand what this election’s all about. It’s about change to the culture and the economy.”

Both pledged to do more about gangs and crime prevention, big topics in the Yakima Valley.

In closing, Rossi claimed he’s getting more and more support from frustrated Democrats.

“This is a citizen-level movement,” he said. “We want to work with anybody who wants to work in good faith and turn this state around. We can change the culture of this state for our children and grandchildren.”

Gregoire closed the debate by leaning, as she had all night, on her education platform.

“My opponent comes up with catchy slogans,” she said. “He’s pretty good at that. But, tonight’s the night we talk seriously with each other. America is in trouble. My opponent would have you believe the problem is that I spent money on education and crime, and he disregards the financial crisis we’re having. Let’s get the facts straight. We have to make sure we have someone with the leadership to see us through these tough times.”

The candidates have been about even in their fundraising, with Gregoire raising $10.2 million to Rossi’s $9.1 million, according to the latest figures from the state’s Public Disclosure Commission.

At their second debate in Blaine earlier this month, both candidates vowed not to raise taxes to cover the expected budget deficit.

Prior to the debate, dozens of members of both parties waved signs and banners and shouted encouragement at rallies at Millennium Plaza, across the street from the theater.

Chants of “Rossi” and “Four more years” for Gregoire could be heard from the small crowd.

Inside the theater, the 1,500-seat facility was nearly filled to capacity.

The debate was sponsored by the Yakima Herald-Republic, KYVE-TV, AARP and the Capitol Theatre.

• Assistant City Editor Scott Mayes contributed to this report.

• Leah Beth Ward can be reached at 577-7626 or lward@yakimaherald.com.