DES MOINES -- The Iowa Senate approved major gambling legislation early this morning after Republican leaders finally pushed reluctant racetrack casinos to come to terms on several key issues.

Racetrack representatives from Dubuque and Polk County took the Senate's latest offer one day after lawmakers threatened to auction those facilities' gaming licenses to the highest bidder at year's end.

"Did it shake some things loose? Yes, I think it did," said Senate President Jeff Lamberti, a Republican from Ankeny. "It really helped move us along."

Senators signed off on the deal with a 39-8 vote after 5 hours of debate. A final vote came just after 12:30 a.m.

The Senate bill also kept hope alive for six counties vying to land new riverboat casinos. Unlike an earlier House bill, the measure approved by the Senate would not slap a moratorium on the issuance of new gaming licenses.

Expansion supporters from those counties packed the Senate gallery. But their legislative allies had to fight off an effort by gambling critics who tried to put a license moratorium into the Senate bill.

"This isn't about gaming, it's about economic development for our communities," said Sen. Bill Dotzler, a Democrat from Waterloo, where leaders are lobbying for a riverboat license.

A Senate gaming deal raised hopes that lawmakers would solve the 2004 session's most persistent puzzle and move to finish their work within days. But the House must still approve the measure.

"The three tracks, the 10 boats are pretty much in agreement with this," said Senate Majority Leader Stewart Iverson, a Dows Republican. "This has been a very long process in getting here."

Under the deal, racetrack casino operators would forgive repayment of all but $117 million in state taxes they overpaid under a previous tax structure tossed out by the Iowa Supreme Court. But $11 million in overpaid dollars would remain locked in escrow while state lawyers pursue an appeal of that ruling before the U.S. Supreme Court.

Racetrack tax rates would jump from the current 20 percent to as much as 24 percent. And the tracks would be required to fork over a one-time, $23 million payment to head off potential cuts in state programs funded with gaming dollars.

Riverboat casinos also would pay a higher tax rate, jumping from 20 to 22 percent, while agreeing to come up with a pair of $15 million payments to the state in fiscal years 2005 and 2006. Those dollars, however, would be paid back over time in the form of tax credits.

And there are trade-offs. Racetracks would get permission to add lucrative table games such as black jack, poker and craps alongside slot machines. And riverboat casinos no longer would be forced to take costly cruises.

Senate leaders said their deal would bring in $13 million more annually than an earlier agreement negotiated by House GOP leaders. At stake are tax dollars spent on an array of environmental programs, including water quality initiatives, and on state building projects.

"I think people worked together and found a resolution that solved the problem," Gronstal said. "I don't know what happens in the House."

Expansion could prove to be a sticking point in the House. And it sparked a spirited debate in the Senate.

House members tried to slam the door on the possibility of new riverboat casinos. Six counties -- Palo Alto, Worth, Black Hawk, Franklin, Wapello and Webster -- are pinning economic development hopes to new riverboats after voters gave the go-ahead for gambling projects.

The Senate bill would put the final decision on new licenses back in the hands of the five-member Racing and Gaming Commission. But a group of senators led by Sen. Bob Brunkhorst, R-Waverly, failed Tuesday to put a moratorium on new licenses in the Iowa Code.

"Most polls show Iowans do not favor expansion of gambling in Iowa," Brunkhorst said. "This amendment puts an end to it. It's a sad day when gambling is our only economic development tool."

Brunkhorst's amendment failed on a 31-16 vote.

But if the commission eventually grants new licenses, they would come at a price under the Senate bill. The measure would charge a $5 million fee for a gaming license in a county with fewer than 15,000 residents, $10 million in a county with between 15,000 and 100,000 residents and $20 million in counties with more than 100,000 residents.