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Traffic in both directions backs up as far as the eye can see beneath a rail bridge on St. Clair Avenue, looking east towards Old Weston Road from Keele, June 14, 2012. This stretch of road has become notoriously gridlocked since the streetcar right-of-way went into service in 2010.J.P. MOCZULSKI

Canada's municipalities, looking for billions in new federal dollars to upgrade infrastructure, are rejecting the federal Finance Minister's suggestion they leverage gas-tax dollars earmarked for their needs.

The quick response Tuesday was part of a cross-country exchange over how to improve roads, transit, water-processing systems and other infrastructure the cities say need upgrades.

"There's some ability to leverage the funding that is existing now, but it's nowhere near what is needed to deal with the backlog of infrastructure crumbling across the country," Vancouver Mayor Gregor Robertson told reporters during a news conference with Karen Leibovici, president of the Federation of Canadian Municipalities.

The FCM is looking to Ottawa to commit a new $2.5-billion amount annually as part of a program to pay for critical repairs to infrastructure upgrades, focused on roads, clean water and transit, in communities across the country.

In total, the federation is proposing an increase in annual funding from the current $3.25-billion to $5.75-billion to bring such spending in line – as a percentage of GDP – with historical levels from the 1950s to the mid-1970s.

In response, Finance Minister Jim Flaherty suggested municipalities "leverage" the $2-billion gas-tax fund to deal with gridlock issues.

While delivering an economic update in Fredericton, Mr. Flaherty also told reporters that his colleague, Transport Minister Denis Lebel, has been in "long" talks with municipal leaders about their concerns.

He said infrastructure funding provided by his government will continue to 2014 "so it's not an immediate issue."

His comments came as he also disclosed this year's federal deficit will be nearly $7-billion larger than projected in March, but that Ottawa hopes to balance the books by 2015-16.

Ms. Leibovici said the FCM request is for a plan that starts in 2014, and she hoped that would give Ottawa some time to improve its finances.

"The economy and the position of the federal government with regards to their deficit debt will be different, one would hope," she said.

The federation suggests that the ongoing gas-tax transfer be the cornerstone of a new long-term plan, but that it be enhanced with a cost-of-living index to protect its purchasing power.

Ms. Leibovici said the FCM released its proposal Tuesday for two reasons. The organization knows, she said, that Mr. Lebel is preparing to make submissions to Mr. Flaherty. Also, the FCM has a board meeting in Ottawa next week, including talks with ministers and MPs, so this was a "good opportunity" to make its case to the public as a prelude to the gathering.

She said the FCM proposal was eminently reasonable. "In looking and discussing this with our municipalities across the country, this is a very reasonable ask and it's an ask we have looked at from a number of angles and one of those angles is the affordability of the ask to the federal government," she said.

Mr. Robertson put the situation in dire terms, suggesting "risks to public health" without upgrades to water and wastewater systems, as well as impacts to quality of life with longer commutes.

"It's not a wish list at all," he said. "This is just to catch up with infrastructure that's falling apart across the country, to reduce traffic congestion and cut people's commute time, which is both a quality of life, and environmental and economic issue for productivity. These aren't nice to have. These are essential to Canada's vibrant future."

With a report  from Jane Taber in Fredericton