The federal government is rejecting calls to classify a proposed subway extension in Toronto's east end as a national infrastructure project, a decision that Ontario says will squeeze out other important spending on the province's wish list.

As originally envisioned, a 6.4-kilometre extension of the city's main east-west subway line into Scarborough would be constructed. It would run from Kennedy station to the Scarborough City Centre and then on to Sheppard, where it would connect with a future light-rail line promised by the province. However, the subway project has long been a source of controversy and its future shape has yet to be resolved.

The $660-million Ottawa has pledged toward the $3.3-billion extension is by far the largest single federal commitment under the New Building Canada Fund, which was first announced in the March, 2013, federal budget.

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The $14-billion, 10-year fund has three sections, including $4-billion for "national" infrastructure. The remaining $10-billion will be allocated under the Provincial-Territorial Infrastructure Component that is mostly allotted on a per capita basis, with $9-billion for "national and regional projects" and $1-billion for small communities.

For Ontario, its share of the provincial component would initially work out to $2.7-billion over 10 years. But because the federal contribution of $660-million for the Scarborough extension is coming from the provincial rather the $4-billion national section of the New Building Canada program, Ontario's share would be reduced by that amount.

Ontario Infrastructure Minister Brad Duguid wrote to his federal counterpart, Denis Lebel, in December, urging him to fund the Scarborough project out of the national component so that Ontario could commit more money to additional infrastructure projects.

That letter said the province's priorities for its provincial share include GO Transit improvements, six highway expansion projects and the extension of Maley Drive in Sudbury, among other projects.

The Globe and Mail obtained an internal federal document showing Ottawa continues to classify the Scarborough subway as provincial rather than national. Vincent Rabault, a spokesperson for Mr. Lebel, confirmed this in an e-mail.

"We intend to fund the Scarborough extension under the provincial component of the New Building Canada Fund," he said.

In an interview, Mr. Duguid said he's frustrated that Ottawa refuses to classify the Scarborough project as national.

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"To have Ontario's portion shortchanged from this approach is challenging for us, so we're hoping that they'll change their mind," he said. "It means less roads, bridges and other important provincial projects that need to happen."

A Globe analysis of the New Building Canada fund revealed this week that only about $1.2-billion of the $14-billion has so far been rolled out. However, federal and provincial sources indicate that a large number of projects are expected to be announced this summer, which coincides with the runup to the October federal election.

Only two projects have so far been announced under the $4-billion national section: $25-million to expand the Fort McMurray airport and $43.7-million for the Port of Montreal.

The City of Toronto is already collecting a special property tax for the Scarborough subway extension and early design work is currently under way. Unless something changes, the east-end part of the city is getting more underground transit.

However, the future of the project as originally conceived is very much uncertain. And it's the transit dream of Toronto Mayor John Tory – a backer of the Scarborough subway – that could sink it.

Mr. Tory ran for office with a proposal to piggyback on provincial plans to improve regional transit service on the GO rail network. But that would mean Scarborough having two significant transit lines in close proximity, competing for ridership.

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City staff are now assessing other possible routes for the subway, trying to find somewhere in Scarborough to put it where it would be viable but wouldn't conflict with Mr. Tory's other plan.

Beaches-East York NDP MP Matthew Kellway said the federal government should ensure that Toronto transit projects get a fair share of the $4-billion fund for national infrastructure.

"I think public transit in Toronto could most reasonably be considered of national import," he said.