(Updated) The legislature’s Finance, Revenue, and Bonding Committee is expected to vote Tuesday on a controversial proposal to securitize $1.3 billion to balance the state’s 2011 budget, and the committee’s Democratic leaders seem to be leaning toward using Keno – a lottery-type game played in bars and restaurants – to generate the money against which to borrow.

Although Keno does not exist in the state, lawmakers are considering it as a revenue stream from which to derive the $1.3 billion necessary to balance the two-year budget.

The controversy over securitization – which is the practice of borrowing against an existing or new revenue stream – has been brewing since Gov. M. Jodi Rell first proposed the concept in her February 2009 budget address to the General Assembly. Later, the legislature’s Democratic majority included securitization in the budget that Rell refused to sign in September. Since then, both sides have been reluctant to embrace the idea.

If the state fails to securitize $1.3 billion, it will either have to cut spending or raise taxes to come up with the money.

Rell’s administration followed through with its legislatively mandated responsibility of laying out a number of revenue options, such as the state’s Energy Efficiency and Clean Energy funds and Keno. Click here for that report.

Rep. Cameron Staples, co-chairman of the Finance Committee, said Monday that no decision has been made, but “we think the energy fund is unlikely.” Sen. Eileen Daily, the other co-chairwoman of the Finance Committee, said the energy funds were never really under consideration.

“We feel an obligation to make some recommendation,” Staples said.

But it’s not a decision that will please everyone in the Democratic caucus.

Sen. Andrea Stillman, D-Waterford, said Monday that she’s let her chairman know she’s not pleased with the idea of Keno. “I’m still highly opposed,” Stillman said her office. “I’m not compromising my principles.”

And Stillman said it’s likely she’s not the only one who opposes Keno.

According to last month’s Quinnipiac University poll 70 percent of voters surveyed opposed Gov. M. Jodi Rell’s proposal to allow Keno gambling in restaurants, bars, and convenience stores.

Stillman said there’s also the issue of whether it would violate the agreement the state has with the two Indian gaming casinos.

She said the state could be putting those agreements, which generate $400 million annually for the state, at risk for “a silly Keno game.”

The rumors that Keno will be the source of revenue t securitize has groups like Environment Connecticut breathing a sigh of relief. Chris Phelps, Environment Connecticut program director, said in a phone interview Monday that the decision makes sense.

If the decision is to go with Keno, instead of the Clean Energy and Energy Efficiency fund, then “it makes perfect sense if the priority is to invest and protect jobs in the state.”

He said the energy funds are helping create jobs in the state and it’s one of the few areas of job growth.