The Department of Indian Affairs and Northern Development has committed $750,000 to help demolish the building.
Western Arctic Liberal MP Ethel Blondin-Andrew announced the funding at an April 26 public meeting in Fort Smith.
"There's no doubt about the commitment," said Blondin-Andrew.
Mayor Peter Martselos, who had lobbied DIAND Minister Robert Nault for the funding, called the announcement a very good day for the town. "For me, the most important thing is the money is committed."
Martselos says the demolition project could begin in about two weeks.
Built in 1952, the old hospital has stood empty for about 15 years. It was last used as the Roman Catholic Church's Diocesan Religious Education Centre.
The 285,000-square-foot structure is contaminated with asbestos, and is considered a fire hazard and an environmental disaster waiting to happen.
The old hospital is owned by Uncle Gabe's Friendship Centre (UGFC), which purchased the building about a decade ago with plans to re-develop it.
Clayton Burke, the chair of the board of UGFC, says dealing with the old hospital has been a burden for his organization and the community, especially the concern over fire.
"We'll be happy to see it demolished," he says.
UGFC has obtained $100,000 from Human Resources Development Canada to help pay the wages of youth working on the removal project.
The demolition will have a $1.2-million budget, including in-kind contributions from organizations such as Aurora College, the town, the Fort Smith Metis Council, Salt River First Nation and the Department of Transportation.
The contractor for the work will be the Thebacha Road Society.
Once the building is removed, UGFC will sell the land to the NWT Housing Corporation for $85,000, Burke says, adding details of the sale are still being worked out.
Even with the sale, Burke says UGFC will have lost between $150,000-$200,000 on the building, including the purchase price, municipal taxes and maintenance over the years.
"We won't recoup our money, but we will get back some of what we lost," said Burke.
It is hoped the land will be completely cleared by the end of July, at which time it will be turned over to the housing corporation, he says.
It will then be used for seniors housing and will also contain a small park.
Fort Smith Fire Chief Darren Linaker says no one will be happier to see the old hospital go than the fire department.
"We've worried about that for a long time," he says.
Linaker notes there have been at least three small fires in the building. "Each time, it's just good luck it hasn't turned into something horrible."