ATLANTA -- In a contest whose outcome surprised many political professionals, Florida's Democratic Gov. Lawton Chiles Tuesday fought back a strong challenge from Republican Jeb Bush.

Equally surprising for many in the Southeast was the come-from-behind gubernatorial victory in Alabama of Republican challenger Fob James, who upset incumbent Jim Folsom.

But in Georgia, another Democratic incumbent seeking re-election, Zell Miller, was able to fight off an unexpectedly strong challenge from Republican Guy Millner.

And in the other two gubernatorial races this year in the region, Republican candidates prevailed over Democrats, as former state Rep. David Beasley beat Lieut. Gov. Nick Theodore in South Carolina, and Don Sunquist beat Nashville Mayor Phil Bredesen in Tennessee.

"People had been expecting Republican gains, but particularly in the South those gains became a tidal wave," pollster Robert Joffee said yesterday.

Joffee said Chiles was able to eke out a 51% to 49% win, reversing Bush's lead in polls through most of the campaign, after "a fatal error" by the Republican last month.

"When your opponent goes negative, you have to come back with a stronger voice," said Joffee, who manages the Florida operation of Mason-Dixon Research Inc "Bush did not, and he lost."

Commentators said that Georgia's Miller, who won by a 52% to 48% margin, held on because of his strong stance on crime and the popularity of the state's lottery, which he fought to establish. Folsom lost by a 51% to 49% margin, they said, after James, a former governor, effectively criticized the incumbent's failure to get legislative approval for funding education reform.

In South Carolina, observers said Beasley won 50% to 48% over Theodore with the strong backing of Christian fundamentalists. And in Tennessee, Sunquist won 54% to 45% amid promises of resistance to state tax increases.

Municipal market participants said that the results of the governors' races in Florida, Alabama, and Georgia could have particular importance for public finance in those states.

In Florida, they said, a Bush victory would have derailed a push for bond funding of prisons. In addition, Chiles will now continue his push to widen the state's tax base by eliminating sales tax loopholes. Bush had criticized this approach.

"I think you will see that the priorities of a second Chiles term will include tax reform and continuing reorganization of state government," said an investment banker. "As for borrowing, there would have definitely been less of it under a Bush Administration," he said.

Chiles victory was important in another way, market participants added, because if Bush had won, Republicans on Florida's cabinet would have had held a four-to-three majority.

Under Florida's system, state-level bond issues must be approved by the seven-member body, which includes the state's top statewide elected officials. Previously, Democrats had held a five-to-two edge. The cabinet also oversees the state's Division of Bond Finance, which manages manages details of its bond sales.

Although Republicans won two new slots -- Bob Milligan beat incumbent comptroller Gerald Lewis, and Frank Brogan bested education commissioner Doug Jamerson -- the Democrats picked up one cabinet seat previously held by Republicans. This happened as former Congressman Bill Nelson beat Republican Tim Ireland to win the Treasurer's spot that will be vacated by Tom Gallagher when he finishes his term.

"Chiles will now be able to get his choice to head the state's division of bond finance," said a Tallahassee bond lawyer. The state is currently searching for a permanent director to replace William Sweeney, who resigned in June to seek employment in the private sector.

Also in Florida, voters approved a constitutional amendment limiting state spending to the growth rate of personal income in the state. The spending limitation can be overridden by a two-thirds vote of the legislature. However, 62% of voters defeated a proposed amendment that would have permitted casino gambling.

In Alabama, the defeat of Folsom means the probable scuttling of a plan backed by the governor to issue $1.2 billion of state revenue bonds to fund education reform.

In an interview last week, finance director Jim White said that Folsom had hoped to win legislative approval early next year to issue the debt, which would be backed with expected growth in the state's sales, use, utility, and license taxes.

White said that pending legislative approval, Folsom had hoped that the state could issue $550 million of debt by mid-1995 to initiate the program.

In Georgia, Miller's victory will probably mean continuation of a relatively high level of state borrowing, market participants said.

"In the last several years, Miller has proposed borrowings at or near record levels," said an Atlanta-based underwriter. "I don't think he will propose as much debt in 1995 as 1994, but I'm sure it will be more than Millner would have asked for."

One of Millner's campaign promises had been to avoid an increase in state spending during his term. Miller refused to make such a pledge.

Outside of the governors' races in the Southeast, the biggest surprise was the defeat of South Carolina's longtime treasurer, Grady Patterson, a Democrat.

Patterson lost to his Republican opponent, Richard Eckstrom, an accountant and political novice. With all of the votes counted, Patterson had about 47.6% of the total vote to Eckstrom's 49.6%. A third-party candidate, David Morris, accounted for the remainder.

Patterson, 70, who sought an eighth four-year term, was first elected in 1966.

Eckstrom criticized Patterson for Standard & Poor's Corp.'s downgrade last year of the state's general obligation bond rating to AA-plus from AAA. The Republican also charged that the state's investment portfolio was being poorly managed, and that its pension fund could face financial crisis.

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