City officials are facing a million dollar dilemma after the Utah Supreme Court ruled a special improvement district used to finance a curb, gutter and street repaving project near Richfield High School was illegally created.

The Supreme Court said the city should not have included property owned by Sevier School District to get the linear frontage legally needed to create the improvement district.The improvement district was used to finance the city's $1.1 million share of the $2.6 million project, which mostly included reconstructive work done on 400 West leading to Richfield High School.

Most of the project was paid for with grants, but the city borrowed the $1.1 million from the Community Impact Board. The 15-year loan has an interest rate of 2.5 percent. The city planned to pay back the loan with revenue generated by assessing the property owners in the district.

Since the project has already been completed, the ruling means the city must now find another way to repay the loan and will have to refund the amount already collected from the property owners.

"Obviously, the city has had a setback," said Mayor Kay Kimball.

Utah law says 50 percent of tax-assessed property owners must approve a special district. By state law, school property is not tax-assessed. However, since the improvements would benefit those traveling to Richfield High School, the school district volunteered to be assessed.

With the school property included, the city received 53 percent property owner approval for the project. Without the school frontage, only 47 percent of the property owners agreed to the special district.

John C. Pappas, one of the property owners who opposed the improvement district, filed a lawsuit saying the city erred in including the school property. However, 6th District Judge Kay L. McIff ruled in April 1997 in the city's favor, saying the school property could be used to calculate the needed approval for the special district because the school board consented to the assessment.

Believing they were in the right, city officials proceeded with the special improvement district and completed the work.

Meanwhile, Pappas appealed to the Supreme Court. The court found in his favor, saying the law "is clear that a municipality may not levy an assessment against school district property."

The court ruled that the school district's agreement with the city constituted a contract and not an assessment. The court remanded the case back to McIff, with a directive to award summary judgment to Pappas.

Marcus Taylor, Pappas' attorney, said the ruling means the project lacked the majority support of property owners as mandated by state law, and therefore the improvement district does not exist, that there are no liens against property and none of the property owners are indebted or obligated to repay the construction costs.

The Richfield City Council held an executive session Tuesday night, the second such meeting since the Supreme Court decision was announced July 21.

"We have some options, but at this point we're not ready to indicate what we are going to do. (City Attorney Ken Chamberlain) tells us to sit tight and let the legal process take its course," Kimball said.

The city could use road money earmarked for future projects. The worst scenario would be raising taxes, but city officials feel that will not be the case and that other solutions can be found.

"You know, these legal proceedings sometimes drag on and on, but they are pretty final," Kimball said. "Hopefully it will wind down so we can get on with it and figure out what we have to do. We are just anxious to get it done."