AUGUSTA – As the Legislature’s Appropriations Committee prepared Friday to take up the governor’s $5.7 billion budget, it was becoming increasingly clear that his proposed lottery sell-off was losing support.

Gov. John E. Baldacci has proposed selling $400 million in lottery revenues over the next 10 years to the Maine State Retirement System for an upfront payment of $250 million to help balance the state’s two-year budget. The administration has suggested the deal would be a good proposal for the retirement system since the projected lottery revenues would generate a higher return than the agency’s other investments.

Republicans in the House and Senate lined up against the plan earlier this year, claiming the governor was “mortgaging our children’s future” by cutting off a reliable revenue stream. This week, dissent spread to the governor’s own Democratic Party after the Legislature’s Labor Committee opposed the plan in an 11-0 vote. The Legal and Veterans Affairs Committee also rejected the plan with bipartisan opposition.

More critical to Baldacci is the level of support the lottery deal has in the Senate where Democrats outnumber Republicans 19-16. Two Democrats, Sen. John Nutting of Leeds and Sen. Ethan Strimling of Portland, have stated they will not support a budget with the lottery sell-off in it, and others have grave reservations about the proposal. If Nutting and Strimling remain true to their convictions and all 16 Republicans reject the plan, opponents would have enough votes to kill the budget-balancing maneuver.

Not coincidentally, the governor’s proposed budget contains $250 million of additional funding for local education, which is the linchpin of the administration’s efforts to reduce property taxes.

The committee votes this week sent ripples through the Legislature in general and members of the Appropriations Committee in particular. Democratic legislative leaders have attempted to convince members of the Labor Committee to reconsider their vote, to no avail.

For eight years, Rep. John Tuttle, D-Sanford, dealt with lottery issues as House chairman of the Legal and Veterans Affairs Committee. He didn’t expect to be caught up in lottery revenues as a member of the Labor Committee, but he became convinced the deal would be risky for the state budget.

“It was sort of a novel approach,” he said. “My concern was the hole it could create in the budget down the road. Once we go there, we can’t go back there again and retract this revenue.”

Sen. Richard Nass, R-Acton, said he and other Senate GOP members were surprised by the overwhelming vote from the Labor Committee, which is composed of eight Democrats and five Republicans.

“It’s being interpreted around here that Labor and Legal and Veterans Affairs have managed to punch a big hole in the governor’s budget,” Nass said. “Opposition is coming from two different directions, and it’s starting to look as if the majority party is seeing the difficulties with that piece of the budget.”

Still, policy committees such as Labor and Legal and Veterans Affairs serve only an advisory function to the Appropriations Committee where the real wheeling and dealing on the budget is only beginning to get under way. The Baldacci administration will be trying to influence Democratic leaders in the House and Senate to push the lottery plan through in Appropriations, absent a more acceptable alternative.

Nass said leadership could expect some challenges from the rank and file because many of their constituents are letting lawmakers know they are unhappy with the proposed lottery sell-off.

“The endgame around here is: How many people are going to be willing to vote for whatever it is you need to vote for?” Nass said. “If these operating committees are ignored, they won’t be very enthusiastic when they are needed for the endgame. That’s the bottom line.”

As the Democratic Senate chairman of the Appropriations Committee, Margaret Rotundo knows that the lottery proposal will have to be reviewed thoroughly by Republicans and Democrats on the committee. To that end, she said Friday she plans to convene a subcommittee of the full appropriations panel to study all aspects of the plan.

“There may be some positive advantages to this that we haven’t yet come to understand fully because we really haven’t had the chance to look into it,” she said. “There’s another way of looking at it which is that this is a form of investment that could reap economic benefits for the state.”

Two lawmakers from opposing ends of the political spectrum agreed Friday that they were looking forward to learning how relinquishing $150 million in anticipated revenues over the next decade was going to help the state. Sen. Ethan Strimling, a progressive Portland Democrat, and Sen. Debra D. Plowman, a conservative Republican from Hampden, found themselves on the same side of the lottery debate.

“This idea doesn’t fly, and there’s been a lot of consternation around here since it was proposed and a lot of the rank-and-file members are not comfortable with it,” Strimling said. “This Legislature has the courage to find an alternative, and we have to start looking at alternatives.”

Plowman said the governor has defended his lottery plan as the best of all possible choices and has challenged lawmakers to come up with a better solution if they don’t like the proposal. She said Baldacci probably wouldn’t have to wait too long for a Republican solution.

“There’s going to have to be a creative compromise that will include spending cuts, an approach that Republicans have advocated for many years now as we’ve watched this problem grow,” she said. “Perhaps we could [lend out] only a small portion of lottery revenues. Because, let’s face it, there’s no guarantee that people are going to continue to play the lottery. Business could fall off, then what?”