A few corrections, David. The funding for the proposed project was not CTEP. The funding was under the Surface Transportation Program Urban or STPU (the majority of this is federal funding--80%, I believe, but the program is administered by the state with federal oversight). The STPU funds can only be used for certain projects. An allocation is received every year and can be saved or the future can be borrowed from (with some limitations). When the funding was not used for the Stower project, it remained available for other eligible projects (i.e., it was not lost) and I believe it has been used to complete an eligible project on the north side of town. The final Environmental Assessment (EA) concluded that the no build alternative was the preferred option for the proposed Stower project because significant issues had been identified and an Environmental Impact Statement (EIS) would be required to proceed. The EA concluded that spending the limited resource available on an EIS was not a justifiable or prudent use of the funding (hence, the no build recommendation). You can read the full final EA on line by doing a Google search for Montana STPU 8009(2). It's 280 pages, but there's some interesting reading there.
The road that was put in by volunteers was not done to engineering specifications (based upon information provided to me by a Professional Engineer with experience in roadway construction). My understanding is that the reason for the 15 mph speed limit is safety--due to the width of the roadway and the side slopes are too steep. Just last week, they were digging up two parts of the road because the manhole access covers were buried when the volunteers did the construction.
My understanding is that, because the EIS requirement was not met, federal funds can never be used for this segment of roadway (unless an EIS is eventually done). This can be confirmed with the Montana Department of Transportation (MDT) or the Federal Highway Administration (FHWA).
There has been a great deal of misinformation regarding this project (including what was posted on mc.com in your link) and hopefully this provides some clarification or directs people to where they can obtain it (the EA is a part of the public record). A word of caution: the draft EA contained significant errors and omissions and the comments received and addressed need to be read in conjunction with the original text to obtain an understanding of the facts.