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Federal Finance Minister Jim Flaherty, left, and Toronto Mayor Rob Ford go through a turnstile on their way to announcing funding of a subway line extension in Toronto on Monday September 23, 2013.

Frank Gunn/The Canadian Press

With the federal government offering to help fund a longer subway extension in Toronto's east end, Ontario is showing a new flexibility but warning that there is not nearly enough money for the more ambitious proposal.

Finance Minister Jim Flaherty said Monday that Ottawa is prepared to put $660-million toward a 7.6-kilometre subway council is pushing for Scarborough. "You have our money, now let's get this subway built," he said.

But even as supporters of the plan claimed victory, there came signs that more work will be needed to win over the provincial government, which is putting up $1.4-billion and prefers a shorter extension on a different route.

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"We are not walking away from a project that is fully funded for one that isn't," said Transportation Minister Glen Murray, adding that the financing for the city's plan falls $1-billion short. "We're far from having a fully funded plan yet. Will we give the city some time to do that? Absolutely. Will we work with the mayor and the federal government to see how we can close that gap? Absolutely."

Rapid transit in Scarborough has turned into the hottest of local political footballs. The area was originally to get light rail but momentum changed toward a subway during the summer. Now politicians at all levels of government are looking ahead to their next election.

The province is determined that a subway gets built – not least because the area will be a battle ground in the next election, Liberal sources say. The party would have a hard time holding on to government without retaining the six Scarborough seats, all of which are currently represented by Liberals. The Scarborough caucus made this point to the government, the sources said, which helped push Premier Kathleen Wynne to back the subway plan.

And in Ottawa, the Harper Conservatives have two priorities on this file. They have a strong preference, where possible, for subways instead of surface transit. They also want to hold on to their 2011 election gains in the eastern Greater Toronto Area. Tory insiders admit concerns about keeping these seats and say that improving transit in the area will help. They are also keenly aware of the way major construction projects boost the economy, an added benefit as the next election approaches.

The sticking points for a subway in this area remains money and the route. The province wants to build a subway in place of the current rapid transit line, running largely above-ground and going to Scarborough City Centre. The city-backed plan, which now has the support of the federal government, involves tunnelling a route up McCowan and terminating at Sheppard.

On Monday, the TTC released a report calling into question the wisdom of the province's preferred route. The report concluded that the proposal was technically feasible but raised a host of other problems, including a slower speed and inconvenience to riders during construction.

At a separate event shortly before Mr. Flaherty's announcement, Ms. Wynne softened her government's insistence that any subway in the area would have to run largely along their chosen route. She welcomed federal financial support and sounded ready to lengthen the subway and change its route, if contributions from Ottawa and the city prove enough to pay for it.

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"We're going to build transit in Scarborough, there's no doubt about that," she said. "Metrolinx and the TTC are going to have to weigh in on this, the technical experts are going to have to look at what's possible, again, with the amount of money that's available. But we are going to build a subway in Scarborough."

In a statement, Metrolinx, the regional transit agency, appeared open to altering the route. "We need to work with the province, the federal government, the City and the TTC to define the Scarborough subway project, the optimum alignment and the costs," the statement read in part.

Mr. Murray maintains that the federal government's funding amounts to just 20 per cent of the project cost, and that it would be unwise to give up on the province's preferred route until it's clear there is enough money to build the extension the city wants.

There are widely varied opinions on the costs of the various transit options. On Monday, TTC Chair Karen Stintz recalled that council had approved a property-tax increase to cover any shortfall in funding. "We did contemplate that we might have to pay more, and if that's what it takes to get the subway built than that's what it's going to take," she said.

TTC CEO Andy Byford said that a joint report with City Manager Joe Pennachetti will address the funding gap and be presented next month.

Mr. Byford welcomed the new federal support but reiterated warnings about the need to take pressure off crowded subways in the core, a problem that will be exacerbated by the proposed extension.

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"I've said since the day I got here that the downtown relief line remains a priority for the TTC," he said. "But I think that, with the time scales available, it's possible we can do more than one thing at a time."

The DRL is listed as a top priority for the next wave of projects identified by Metrolinx. How to fund these projects has not been determined and the provincial government recently farmed out the question to another panel of experts.

A summer council vote supporting the longer subway option demanded the full $1.8-billion the province had previously set aside for an LRT in the same area. The province has repeatedly insisted that they can provide only $1.4-billion. That gap, and the Metrolinx position that the city will be on the hook for cost overruns, has detractors worried.

"I've never seen so much public money at stake with so little documentation," said councillor Gord Perks. "We are being asked to pick a number out of the air without any certainty about what we're doing. It's as if you went to a supermarket and were given a bag of groceries and told, 'It's going to cost you $250, but we can't tell you what's in it.' "

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