Connecticut took a step towards establishing a system of publicly funded elections Wednesday as the state House and Senate voted on a bill that would outlaw campaign donations from lobbyists and state contractors, replacing that money with grants from the state.

With the bill having passed the Senate, Connecticut will be the first state in the country whose legislature voted to establish a system of publicly funded elections if the House approves the bill.

The bill, which the Yale College Democrats and Students for Clean Elections had lobbied for in Hartford, was approved in the state Senate with a 27-8 vote after an eight-hour debate. The House began debate at 9 p.m., and had not voted on the bill by midnight.

“The bill will be the most significant reform in the entire country,” Connecticut Senate Majority Leader Martin Looney, a Democrat, said.

While Maine and Arizona have similar systems in place, theirs were established through ballot referenda, said Andy Sauer, executive director of Common Cause, a campaign finance reform advocacy group that has been active in lobbying for passage of the bill.

The bill establishes publicly funded elections beginning in 2008 for legislative campaigns and in 2010 for gubernatorial races and prohibits “soft-money” contributions from lobbyists and state contractors as of December 2006. Candidates who participate in the new system, if passed, would be required to prove their viability by raising a certain amount of money through individual contributions of under $100. They would then become eligible for grants from the state, which vary in size depending on the office being sought. House candidates must raise $5,000 in order to receive $25,000 from the state, while candidates for governor must raise $250,000 to receive $3 million.

Connecticut Gov. M. Jodi Rell has indicated that she will sign the bill into law if the Senate and the House approve it.

New Haven Mayor John DeStefano Jr., a candidate in the 2006 gubernatorial election, issued a statement in support of the bill calling it “landmark legislation.”

Sauer said the bill, if implemented, would be the strongest campaign finance reform nationwide.

“This is the biggest piece of legislation the state has been faced with in at least 10 years,” he said.

But some elected representatives said the bill has imperfections. While Republicans said those imperfections caused them to vote against the bill, Democrats called the bill’s shortcomings insignificant and said they can be addressed in later sessions if necessary. In the Senate vote, seven Republicans voted against the bill and four Republicans voted in favor of it.

“While it purports to get rid of special interest money, there are a lot, a lot of loopholes,” said Adam Garbinski, spokesman for Senate Republican Leader Louis C. DeLuca. “It didn’t really take the money out.”

The particular loophole that DeLuca objected to, Garbinski said, was a provision that allows candidates to receive contributions of goods and services, but not money, from town and state political committees as well as from Leadership Political Action Committees, fundraising groups set up by politicians to collect contributions for themselves and their colleagues. Such a provision, Garbinski said, would allow lobbyists to continue contributing to candidates by funneling money through such groups.

Garbinski also said Republicans want to eliminate soft money immediately, before next November’s elections. Democrats objected to that proposal, saying it would be inappropriate to change campaign rules in the middle of the 2006 election cycle, which is already underway. The final bill postpones the changes until the next election cycle.

Democrats said the provision allowing in-kind contributions, which was modeled after similar provisions in Arizona and Maine, was a minor aspect of a bill that is otherwise stringent. Some supporters of the bill said Republicans are misguided to hold up passage of a bill as complex as this one — at over 120 pages long — because of one questionable line.

“To be sure, it’s not a perfect bill, but it is arguably the most progressive campaign finance bill in the country,” said Students for Clean Elections founder Dan Weeks ’06, who has worked extensively on Connecticut campaign finance reform and who was in Hartford Tuesday lobbying for the bill’s passage. “Some money is still getting in, and that is less than perfect, no doubt, but I think it’s understandable given how significant these changes are.”

Democratic state Sen. Gayle Slossberg, an assistant majority whip, said this bill had taken many months of compromise and debate and likely represents the best chance at reforming the system. But she said she understand that many lawmakers might have reservations about the change.

“Better we should get something moving in the right direction where we’re removing the influence of special interests,” she said after the vote in the Senate. “A lot of people have issues with taking public money to run a campaign, and I think that’s a legitimate concern, but on the other hand it does allow for more competition in races.”

The proposed reform voted on yesterday in Hartford has been in discussion for a number of months. At the end of the last legislative session, two competing bills were passed by the Senate and the House, but a compromise between the two could not be reached. A bipartisan working group formed over the summer was also unable to develop a bill. Rell then called lawmakers into a special session in October to continue the debate. Yesterday’s vote represents the final compromise agreed upon in that special session, a compromise reached only late last week, Looney said.

“It’s such a major change in the way that campaigns would be financed and run,” House Democrats spokesman Larry Perosino said. “Kind of a fear of change is what the overall ambiance is, but clearly the majority of the Democrats in the House want to see the special interest money removed.”

Some Senate Republicans said they were upset at being excluded by the Democrats from the most recent discussions; according to Garbinski, Republicans only saw the bill’s text on Monday afternoon, although Looney said the Republicans had ample time to debate the issues central to the bill.