City council is looking at ways to raise money for a new downtown arena. (Katz Group)

Edmonton Mayor Stephen Mandel is skeptical about a federal government plan to funnel tax dollars into a controversial plan to build a new NHL arena in Quebec City.

Sources tell CBC News that the Conservative government is considering allowing part of the federal gas tax revenues to be used for construction of "large entertainment centres" such as the proposed new Quebec City arena.

"We've already used our gas tax money to go buy light rail transit, which was what it was supposed to be done with to begin with," said Mandel.

"Now they're saying you can do something else so, in other words, the people that didn't spend the money properly are going to get an advantage."

"Unacceptable, absolutely unacceptable, but we'll have to see."

The city is looking for ways to help pay for a new downtown arena for the Edmonton Oilers.

City's share dedicated to LRT

Cities and towns across the country currently share an annual pot of just over $2 billion from the federal gas taxes collected at the pumps.

Edmonton's portion has doubled over the last three years of the program:

• 2008 $20.0 million
• 2009 $39.9 million
• 2010 $43.6 million

All the money has gone towards borrowing costs for the South LRT project.

The city will continue to receive $43.6 million annually until 2014, the period covered by the existing agreement. That money too is committed to servicing the debt on the South LRT.

While municipalities are free to pick their own projects, the federal government stipulates the gas-tax money can only be used for infrastructure such as roads, sewers and water treatment systems.

Sources say the Harper government is considering simply amending the regulations to allow municipalities to spend all or part of their annual gas-tax funds on entertainment facilities such as a new NHL arena.

The idea is worth looking at, said Edmonton MP Brent Rathgeber.

"Certainly there's demands on the federal government for these types of projects," said the Conservative MP. "That being said, certainly my constituents are not real keen on public dollars being used, but the gas tax might be a reasonable compromise."

The necessary regulatory changes could be included in the next federal budget expected to be introduced in March.