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Toronto's faltering dream of hosting the 2015 World Expo received a jolt of hope as top leaders from the city, the province and the federal government scrambled last night to break a deadlock before today's noon deadline to submit a bid.

In a hastily arranged conference call described as "positive" by all sides, Mayor David Miller spoke with Ontario Finance Minister Greg Sorbara and two members of the federal cabinet, Finance Minister Jim Flaherty and Heritage Minister Bev Oda, to end an impasse that threatens Toronto even submitting its bid to the Paris-based Bureau International des Expositions.

At issue is a feud between Queen's Park and Ottawa over who should backstop a likely deficit -- now pegged at $400-million -- on the $2.8-billion project. Ontario says it won't provide the guarantee, saying surplus-rich Ottawa should pick up the tab. But the federal government cites a long-standing practice that puts the onus on provinces to backstop potential cost overruns from international events.

After the conference call, the leaders dispatched officials to work overnight before another top-level political discussion early today.

"It was a very productive conversation," Mr. Miller said to reporters, about the 20-minute call. "There is goodwill . . . and with goodwill there is often a way." He added, "We're trying to find a resolution to the issue of the guarantee. And we think we have some ideas that might help us put the bid in."

In Ottawa, Ms. Oda praised Mr. Miller for making fresh efforts to engage the private sector in funding part of the bid, if Toronto wins. But she said, "We still have the challenge of the province committing to cover the deficit." One possible option, now under review by Heritage officials, is for Ottawa to submit Toronto's bid without immediate assurances on who will backstop any deficit. But Ms. Oda stressed that was emphatic that "we can't be covering the deficit."

At Queen's Park, a spokesman for Mr. Sorbara confirmed that "all three parties have agreed to continue the discussions," but said the province has not changed its position on the guarantee.

The controversy over the bid is occurring as the two senior governments are enmeshed in a wider, and increasingly nasty, dispute over the so-called fiscal imbalance.

In recent days, Premier Dalton McGuinty escalated his campaign to get Prime Minister Stephen Harper to honour his election pledge to address the fiscal issue by living up to a $6.9-billion agreement negotiated by former Liberal prime minister Paul Martin.

In a further sign of deteriorating relations, federal Indian Affairs Minister Jim Prentice abruptly cancelled a meeting with his counterpart, Aboriginal Affairs Minister David Ramsay, on Tuesday.

Earlier yesterday, from Ottawa, Ms. Oda said that "we have a draft letter ready to go [to the BIE]once we are given indication the province and the city have come to terms on covering the deficit."

She is pledging $600-million in federal funds to pay for a Canadian pavilion, event programming and security and immigration costs.

But Ontario, having put up $1.2-million in prebid support, now cites the fiscal-imbalance issue as a key reason not to backstop potential financial losses. Since 2005, when Toronto decided to make its third run at a world's fair, the assumption was the province would back possible losses.

While caught in the political crossfire between Queen's Park and Ottawa, the Toronto bid has had troubles of its own. According to several sources involved in early preparations, the bid suffered from the absence of a visible champion, a clear theme and uncertainty over key elements of the project. Some of the proposed sites in the Port Lands are in private hands.

The BIE already has bids in from Izmir, Turkey and Milan and picks the winner in February, 2008.

With a report from Murray Campbell

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