Howard Mills, who lost the 2004 U.S. Senate race in the largest landslide in state history, is being courted to challenge Rep. John Hall (D-Orange/Rockland/Westchester) next year.

Republican leaders in New York and Washington have reached out to Mills, a popular former Assembly member and state insurance superintendent, following last week’s surprise withdrawal of Metropolitan Transportation Authority Vice Chairman Andrew Saul from the race. A source close to Mills confirmed that he is seriously considering entering the race against Hall, a first-term Democrat who unseated former Rep. Sue Kelly last year.

Mills would likely be seen as the leading contender for the Republican nomination should he decide to make the race.

“The general consensus is that with Orange County being a significant portion of the district, with Howard’s former Assembly district encompassing most of that, he would be the best Republican,” the source said. “He is being courted right now.”

Mills, 43, is believed to be looking to reenter the political arena. He gave up his safe Assembly seat to take on his uphill challenge to U.S. Sen. Charles Schumer (D) in 2004, being rewarded by then-Gov. George Pataki (R) with the cabinet post following the race. Since departing as the state’s chief insurance regulator earlier this year, Mills has been working for the accounting powerhouse Deloitte & Touche as a chief insurance industry advisor in their Lower Manhattan offices.

Rockland County Republican Chairman Vincent Reda said he has heard the rumors that Mills is considering a congressional bid, but has not spoken to him yet, noting that he does have a call into the former insurance superintendent inquiring about the race. Reda said Mills would be a formidable contender with high name recognition and a reputation as a moderate. He noted that with the possibility of former New York Mayor Rudolph Giuliani leading the national GOP ticket next year, a moderate would be best positioned to challenge Hall.

“I would be on his bandwagon and I would encourage him to run,” Reda said.

Reda noted that several other names have been mentioned as potential candidates, including former Pataki advisor Michael Finnegan and Assembly Member Greg Ball (R-Putnam), and said that both would be strong contenders as well. So far only Iraq War veteran Kieran Lalor is the only Republican to declare his candidacy. The little-known Lalor, a teacher and self-described national security activist, is not being seriously considered as a contender for the seat, especially in light of the Mills speculation.

Former Rep.  Joseph DioGuardi (R-Westchester), who has lost four congressional races since losing his seat to Rep. Nita Lowey (D-Westchester County) in 1988, is also considering a race.

Several reports have also indicated that Emily Pataki, a New York attorney who campaign extensively for her father statewide in 2002, is a potential candidate for the seat. Former White House Press Secretary Ari Fleischer announced in late 2006 that he did not have plans to challenge Hall.

Reda said Republican leaders in the Hudson Valley have been discussing the race in-depth in recent weeks and hope to settle on, and announce a Hall challenger, shortly after the Jan. 1. He said the party believes there is little chance of a primary occurring unless a conservative activist enters the race.

Reda and other sources said Mills’ political background would make him a logical fit for the moderate Hudson Valley. Mills, a military reserve veteran activated after the Sept. 11 attacks, is pro-choice, pro-Second Amendment, against late term abortion and moderate on social issues.

The National Republican Congressional Committee has not discussed the race with Mills yet, but is said to be interested in talking with him. A source said Mills is considered a strong candidate by the national GOP.

Mills raised $600,000 in his Senate race, compared to Schumer’s $26 million, but is said to have a strong fundraising network which could help a congressional bid. He also has extensive insurance industry contacts from his two year stint as the industry’s chief regulator. Mills was reported to be raising money for his Assembly account while in the cabinet, to pay for such items as a luxury car lease, meals and gifts. Pataki publicly rebuked him for the practice.

Mills had long been groomed by Hudson Valley Republican leaders to succeed former Congressman Ben Gillman (R) in his seat, which was abolished with the 2002 redistricting. Mills was first elected to the Wallkill Town Board in 1988, a post he held for four years before beginning a six year stint as the town’s supervisor. He served in the Assembly for six years starting in 1999. Mills had a fast rise in Albany, serving as the Assembly’s deputy minority leader and as head of the Republican’s campaign committee, before leaving for the Senate race.

Mills’ statewide race was hampered from the start against the popular Schumer. Mills was denied the Conservative Party’s nomination, which went to Marilyn O’Grady, because of his stance on abortion. Lagging in fundraising, Mills often struggled for name recognition across the state. He received 25-percent, trailing Schumer by 46 points. He carried only one county, upstate Hamilton, which is the state’s smallest and most Republican.

Hall, who was the lead singer in the band Orleans and a former Orange County legislator, unseated Kelly last year, in a race which many said was a referendum on the Bush Administration. In addition, Kelly, a moderate Republican, was said to have run a poor campaign for a seventh term. National Republicans have made Hall one of their two top New York targets for 2008, along with fellow first term Rep. Kirsten Gillibrand (D-Saratoga/Rensselaer).