More than $500 million earmarked for the federal stimulus program is in danger of being caught up in delays and never being spent, a new report says.

Road construction was underway near Lake Louise, Alta., in late 2009. Infrastructure projects launched with the hope of federal stimulus funds must be finished by March 2011 to be eligible for the money. (CBC)

On Monday, parliamentary budget officer Kevin Page released his third report on the spending program.

He suggested more than half a billion dollars from the $4-billion infrastructure stimulus fund might not be spent before the government cut-off date of March 31, 2011.

Many projects got off to a late start or are dragging on longer than expected, Page found.

In a best-case scenario, work would proceed quickly from now on and all 2,902 approved projects would be finished on time, the report says. But that's not likely to happen.

Trends, along with benchmarks established by the budget office, indicate the deadline won't be met and "a lapse of federal funds is likely," the report said.

By the end of March, 24.5 per cent of stimulus projects had been completed — up from 17.3 per cent at the end of the previous December — and the value of completed work was $1.087 billion.

But the pace of spending is clearly picking up, Page found. More than $800 million was on track to be spent in each of the months of July, August and September 2010.

The report also projects a worst-case scenario — that 1,814 projects, or 46.36 per cent of the total, might not be completed by the March 2011 deadline.

Prime Minister Stephen Harper said Monday that he was happy with how the projects were proceeding.

"Ninety-three per cent of money has now been committed to projects that are under way in some form," Harper said, during a funding announcement at the Vancouver Aquarium. "I think that virtually all our projects will be complete by the timeline and we're optimistic that our partners will achieve the same thing in most cases."

Page told CBC's Power & Politics with Evan Solomon that he thought "we were 100 per cent under way for the most part of these projects."

"But the question is, how much of this work is actually complete and where will we be on March 31, 2011? How much of that work will actually be completed?" he said. "If we're lapsing a lot of money so that provinces and municipalities aren't able to complete the work, then the question is, who owns that bill? And will it be transferred effectively to the provinces and municipalities?"

Municipalities want deadline extension

The Federation of Canadian Municipalities and other municipal organizations have been urging the federal government to lighten up on its deadline. Ottawa has repeatedly said it won't.

The federation argues that in many cases, projects aren't on schedule because of events beyond the control of municipalities and contractors. Work has been slowed by elections, acquisition of permits, availability of materials, local decision-making or bad weather, they say.

If Ottawa doesn't examine the delays and make allowances on a case-by-case basis, municipalities fear they will be left footing 100 per cent of the bill for work done after next March — instead of the 33 per cent for which they signed on.

Speaking to reporters in Ottawa, Liberal Leader Michael Ignatieff said his party would be open to extending the deadline. At a minimum, a Liberal government would show flexibility, he said.

"How does he know what Canada is going to need in March 2011?" Ignatieff asked of Harper. "Why is he setting this arbitrary deadline?"

With files from The Canadian Press