HARRISBURG -- The Republican-dominated Legislature voted last night to reform Pennsylvania's new slot machine law by removing the "1 percent loophole," a much-criticized provision that permits state lawmakers and other politicians to own up to 1 percent of a casino or gambling company.

But the battle over the new law is probably not over, because Democrats from both the House and Senate are urging Gov. Ed Rendell, a Democrat, to veto a GOP amendment that gets rid of the 1 percent loophole but also makes other changes that Democrats don't like.

The House voted for the GOP amendment to the slots law 130-63, about an hour after the Senate approved it 28-19, on a largely party-line vote.

One point that caused a heated dispute between Senate Republicans and Democrats was whether the state should mandate creation of new companies called slot machine distributors. Democrats said yes, it was a job-creation measure, but Republicans said no, such companies aren't needed and shouldn't be required.

There was an angry exchange between Sen. Vincent Fumo, D-Philadelphia, who is a strong supporter of slots in Pennsylvania, and Republican Majority Leader David Brightbill of Lebanon, a slots opponent. The Senate went with Brightbill, voting to make optional, rather than mandatory, the creation of slot machine distributors. The distributors would function as middlemen between the state's new casinos and out-of-state manufacturers of slot machines.

An irate Fumo said he would ask Rendell to veto all the slot machine amendments, including the ban on the 1 percent ownership by legislators. Fumo was later joined in the veto call by House Democratic leaders H. William DeWeese, of Waynesburg, and Mike Veon, of Beaver Falls.

"The Republican-authored legislation weakens provisions relating to the ownership of slots facilities as well as jeopardizes the promise of $1 billion in property tax relief,'' they said.

The bill calls for background investigations of many employees of casinos and casino suppliers, which Democrats fear could delay property tax reductions for several years. Part of the new revenue raised by taxing casinos will go to reduce school property taxes. But the longer it takes to set up the casinos, the longer it will take to generate revenue to cut taxes, DeWeese said.

If Rendell carries out the veto, it would kill the popular call to end the 1 percent loophole -- a change that's been demanded by many state residents who have voiced their opinions loudly in calls to radio talk shows and to their legislators. The critics fear politicians could enrich themselves through casino investments.

Fumo insisted it is important for the state to mandate the creation of new Pennsylvania-based companies that would be slot machine distributors or suppliers. He said it will help create new jobs, because such distributors don't exist now in Pennsylvania and will thus have to be formed from scratch, hiring people to locate slot machines for casinos, to find new casino customers for slots makers and probably service the machines when necessary.

But Brightbill scoffed at the jobs claim, saying a distribution company could be as simple as one person hiring an accountant to file incorporation papers and call slots makers to supply the machines. He said the use of distributors should be optional for casino operators.

Fumo also complained about another section of the Republican amendment. He said it "weakened'' a provision in the law that prohibits a wide range of relatives of elected officials from working for a casino or selling products to a casino.

The GOP proposal prohibits only spouses and minor children of elected officials from doing business with casinos. Fumo said the original law was better -- banning parents, siblings, adult children and all other relatives of politicians from having anything to do with a casino.

"You will now permit Senate members to ask slot operators to hire their relatives,'' Fumo told Republicans. "Under the guise of closing the 1 percent loophole, we're opening up a huge garage door. This is horrible public policy. The real corruption isn't in slots distributorships, it's in who sells napkins to a casino or who has the shrimp concession.''

But Brightbill said it wasn't fair to enact such a broad prohibition on the livelihood of any parents, brothers, sisters, or adult children of any elected official, banning them from having anything to do with a gambling company. "It's a harsh rule to talk about automatic disqualification just because you happen to have a relative in the General Assembly,'' he said.

In other legislative action yesterday:

The Senate sent to the House a bill allowing the state's 1,100 beer distributors to -- if they wish -- open on Sundays to sell cases of beer from noon to 5 p.m. But the House later killed the measure for Sunday beer sales, which was being pushed by Sen. Sean Logan, D-Monroeville. The Senate later agreed to kill the bill as well. The bill also permited 25 percent of the state stores to sell liquor and wine on Sundays, up from the current 10 percent.* Legislators wouldn't say when or if they will vote on a proposed $13,000 pay raise for themselves before adjourning today or tomorrow. Salaries could go up from the current $66,204 a year to about $79,000, or half what a member of Congress earns. Even without a bill to raise their salaries, legislators will get a raise to $69,648 effective Dec. 1 because of an automatic cost-of-living adjustment that takes effect every year. This year the COLA is 5.2 percent.

Brightbill announced that Sen. Stewart J. Greenleaf, R-Montgomery, had been injured in an car accident early Friday when he fell asleep at the wheel of his car while driving home to suburban Philadelphia. Greenleaf was scheduled to released from a hospital yesterday.