The New Yorkers wanted Congress to foot the construction bill but because southern shipping interests feared competition - and controlled Congress - they said "No". The New Yorkers, in effect, said "Screw You", passed the hat among their own, and got it built anyway.
Ah, the "Good Ole Days". :-)
In a neat show of symbolism, they shipped a barrel of Erie water down to the City, where it was poured into the ocean, connecting Erie to the Sea. Then did just the opposite at the Lake Erie terminus.
Check out a book called “Wedding of the Waters” by Peter Bernstein. Terrific history of the canal. Also shows how little politics in Albany have changed in roughly 200 years.