Manitoba Premier Gary Doer (left) and Winnipeg Mayor Sam Katz smile at Monday's transit announcement. (CBC)The City of Winnipeg and the province of Manitoba have signed a $138-million deal to build a rapid transit corridor connecting the city's downtown with the Fort Rouge neighbourhood.

The first phase of the project will build a dedicated bus lane from The Forks in downtown Winnipeg to Jubilee Avenue in southern Winnipeg, and will include a dedicated bicycle path.

"I've always said rapid transit is part of our city's future," Winnipeg Mayor Sam Katz said in a release. "By laying the groundwork today, we can move ahead on providing Winnipeggers with quick, reliable and green transportation alternatives at a time when gas prices are an unprecedented high."

The first phase of the project is expected to cost $138 million and take three years to complete. Maps on display at Monday's announcement showed potential stops on the bus line near Morley Avenue, Confusion Corner, Harkness Avenue and Union Station.

The project will include high-density residential units at the hubs or stations along the line, as well as park-and-ride options, Katz said.

"Most importantly, the department is working to make sure we can get people from their residences directly to this line. That's what it's all about," he said.

Second phase to run to U of M

A second stage of the project will run from Jubilee Avenue to Bison Drive, near the University of Manitoba, officials said, although there were no details released about when that might happen or how it would be financed.

The project will help improve transit ridership and efficiency, while helping to reduce greenhouse gas emissions and meet Kyoto targets, Premier Gary Doer said.

Winnipeg will contribute $30.75 million to the project, including $17.5 million from the 2008 federal transit trust.

The province will match the federal transit trust contribution of $17.5 million and will fund half of the net operating costs of the rapid transit system through its existing 50/50 transit funding agreement with the city.

The new rapid transit corridor will also use tax-increment financing — reinvesting property and school taxes into certain areas to encourage infrastructure development — to capture any incremental growth from residential and commercial infill development along the rapid transit corridor, officials said.

Light rail still possible: mayor

Winnipeg Coun. Dan Vandal said he is pleased that after more than four years in office, Sam Katz has reversed an earlier position of not investing in bus rapid transit. Vandal said rapid transit systems are good for the environment and the infrastructure while contributing to a more exciting, pedestrian-focused downtown.

Katz said he was delighted with today's announcement for bus rapid transit, but he also said he has not given up hope that the city will eventually see a light-rail transit system.

The mayor had no cost estimates on a light rail system but said the busway would be constructed in such a way as to allow a switch to light rail later and the city would continue to pursue funding for it.

Paul Hessse, chairman of the Rapid Transit Coalition, which has been lobbying for a dedicated bus lane from the downtown to the University of Manitoba, said the group was pleased with Monday's announcement.

"We're talking about commuter cycling paths beside it. We're talking about transit-oriented developments along it. So, yes, the rapid transit coalition is happy," he said, adding that he was also encouraged by Katz's support for light rail.

"That's certainly also a positive step, because the way it's being proposed to be built, it allows for either bus rapid transit or light rail," he said. "Down the road, if the governments are in a position to fund it, we can be looking at light rail in Winnipeg, too."

The City of Winnipeg released this map of the proposed bus rapid-transit line. (City of Winnipeg)