City Manager Rob Wolfington says they money is going back to the Minnesota Department of Transportation because the city can't afford its share of matching funds.
Wolfington says the city received the grant in 2006 for a trail extension that would cost about $280,000 to build.
With matching funds and the required engineering costs, the city would be on the hook for nearly $115,000 to build the project.
The City Council could have rolled the project back to 2012, but Wolfington says the city doesn't think it will be in any better financial shape in three years.
The council took the action on Monday.
