When the Sioux Falls City Council approved the sale of land on the north edge of downtown two years ago, it was meant to jump-start the transformation of a key part of the city's core.

But two years later, the city still holds the title to the land on North Phillips Avenue, records show. And the ambitious development plan councilors envisioned is stalled, a result of the economic downtun and a soil contamination problem that could significantly raise the price on the project.

Both the city and the developer - Uptown at Falls Park - say they remain committed to developing the area. But Sioux Falls city councilors say they haven't been updated on the development since approving it. And despite a development agreement that called for the city to sell the land, unexpected complications have prevented the sale.

Chief among those complications is the land itself, which once was an industrial area. The state is overseeing an environmental study aimed at mapping the concentration of pollutants on the almost 4.75 acres. The results, which are nearly final, could force Uptown at Falls Park to change its plans or delay the project further.

Craig Lloyd, a partner in the Uptown group, complimented city officials for trying to work through the problems. He's confident a solution will be found. But the situation highlights the difficulty of redeveloping land downtown.

"If I went out and looked at a piece of land north, east or south of Sioux Falls - I don't care where you go - I don't have these issues," Lloyd said.

Officials acknowledge that high concentrations of lead exist in the soil. Those concentrations vary. Higher levels apparently are found farther north, past Third Street. The existence of contaminants is not a surprise. Nor do they necessarily preclude development.

But, depending on the levels of pollution, the contamination could add significant cost to the project. The state has decided that low levels of polluted soils can be dumped at old lime pits owned by the city - a solution with minimal costs. Soils that exceed that threshold would need to be dumped at Sioux Falls Regional Landfill or another place permitted to handle certain levels of contaminated soils, state and city officials say.

Disposal as hazardous waste

If the pollutants are too high, the excavated soils couldn't go to the landfill. Instead, they would be classified as hazardous materials and need to be dumped somewhere capable of handling hazardous soils. The line between hazardous and nonhazardous comes with a big price tag: It could cost as much as $400 a ton to dump hazardous soils at a facility outside of South Dakota versus $15 a ton at Sioux Falls Regional Landfill.

Officials don't anticipate that much, if any, of the soil will be polluted enough to classify as "hazardous." But preliminary tests show that as much as 4 to 6 feet of topsoil is polluted enough that it would need to be taken to Sioux Falls Regional Landfill.

The city has had high hopes for the land. Taxpayers spent millions of dollars extending Phillips Avenue to Falls Park - a process fraught with environmental challenges because of the industrial businesses that once inhabitated the area. Aside from incorporating the park into downtown, the project promised a new chapter for downtown development.

Three years ago, when the city asked for development proposals, it received only one bid from a group of business people who already owned many of the historic buildings along Main Avenue. Their bid was tailored to what the city wanted: mixed-use development complete with residential and commercial space.

Economy prompts revisions

Although it's been two years since the City Council authorized the sale, the council has not been briefed on the issue. Jodi Schwan, Mayor Dave Munson's chief of staff, sent councilors an e-mail last week assuring them the project remains on track. The purchase price of the land was more than $1 million, with half of that due at the time of closing.

"I thought we made a good faith contract to get the money and we don't have it yet," Councilor Kermit Staggers said. "It's a surprise, but not a surprise."

"We haven't heard anything in a long time," Councilor Pat Costello said. "If (the land) is still in our name, obviously we haven't been paid yet."

The Uptown group already has altered its development plan to meet economic realities that did not exist two years ago. The development was to have occurred in three phases. The group is delaying the first phase - a mainly commercial area at Fourth Street - and pushing ahead with a more heavily residential section, which was to have been the second phase.

Two main commercial tenants backed out, Lloyd said, forcing the group to start the residential portion first. It calls for 140 apartments and 26,000 to 30,000 square feet of office space. The group has commitments to rent 12,000 square feet of space, and it needs to secure agreements for roughly 4,000 more before bankers finance the project.

Railroad easement was a snag

Even if the tenants line up, the developers can't call out the construction crews and start building.

"We can't build on land we don't have title to," said Uptown spokeswoman Jennifer Fleming. "We can't even get title to the property."

Hang-ups to getting the title transferred started with an old railroad easement. Railroad companies staked claims across the western United States in the late 1800s. Lloyd said it took lawyers a year to research what company filed the easement and whether a succeeding company inherited the claim.

Next came environmental issues. Both the city and the Uptown group agreed the area needed more tests. The state Department of Environment and Natural Resources has set limits for how contaminated soils from the site will be handled.

"Our bottom line is we want to make sure that people aren't being exposed to lead contaminants that could harm them," said Kim McIntosh, a senior scientist with the department.

The development plan called for an underground parking garage. But it means excavating more soil that is potentially contaminated. "If they decided not to put in underground parking, they would not have as much soil to deal with," McIntosh said.

The future depends on the outcome of the environmental report.

Lloyd has set a September deadline for resolving the outstanding issues. By then, he hopes to be ready to begin work.

"The city's been unbelievably cooperative," he said.