The Conservative government is rejecting calls for a dedicated public-transit fund as it prepares one of the central features of the 2013 budget: a new long-term plan for infrastructure.

In the past two budgets, the Conservatives promised to work with cities and towns through the Federation of Canadian Municipalities on a multibillion-dollar infrastructure plan. Ottawa's current seven-year infrastructure fund – called Building Canada – expires next year.

The FCM released a prebudget proposal this month that called for federal infrastructure spending to rise from $3.25-billion a year to $5.75-billion, including a new $1-billion "Cutting Commute Times" fund that emphasizes the need to tackle gridlock in major centres.

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The FCM report noted that daily commute times for both the Greater Toronto Area and Metro Montreal are more than 75 minutes, which is longer than for London, New York and Los Angeles.

But in an interview with The Globe and Mail, federal Transportation Minister Denis Lebel rejected the notion of a special fund, saying decisions on transit shouldn't be made in Ottawa.

"We will not dedicate money for a specific program for transit or other ideas like that. We prefer to work with provinces and territories," he said.

Mr. Lebel also said the new infrastructure plan won't mean less money for municipalities, but would not be more specific on what kind of new spending Ottawa has in mind. The minister said there are no widely agreed upon formulas for how to spend federal infrastructure money.

"When I'm in the territories, they say, 'We don't want to have it by population when you give out the money because we will not have enough.' When I'm in big cities, 'Oh, we want to have it by population.' When I'm in Toronto or Montreal: 'Oh please, more money for transit.' When I'm in Yellowknife or Iqaluit, they say: 'No, have money for the north.' We will not work that way. We will work … to have the most balanced approach."

Business groups like the Toronto Board of Trade have raised repeated warnings about the economic harm of gridlock in major cities.

Mississauga Mayor Hazel McCallion argues gridlock risks undermining Prime Minister Stephen Harper's efforts to attract foreign investment.

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"The Prime Minister is going abroad – and we appreciate that – to encourage investment to Canada and I think that's wonderful," she said last week at a meeting of big-city mayors in Ottawa. "But if they come here and they can't move their products in the GTA –or move their people – they're not going to be very happy."

In an era of budget deficits and lower-than-expected economic growth, infrastructure is one of the rare areas of potential new spending on the horizon for the federal Conservatives. Yet Finance Minister Jim Flaherty is facing an increasingly challenging financial picture. His fall economic update, released last week, pushed back Ottawa's official timeline for erasing the deficit to 2016-17. And just a few days later, Prime Minister Stephen Harper vowed his government would balance the books before the next election, scheduled for Oct. 19, 2015.

Those comments from the Prime Minister suggest Mr. Flaherty will have little room for additional spending and will likely have to find new sources of savings.

NDP transport critic Olivia Chow, who supports the FCM plan, said the minister's talk of letting provinces and municipalities make decisions on infrastructure is contradicted by the government's record of favouring political pet projects.

"We need to take the politics out of infrastructure spending," she said.