Oops. Officials at troubled charter school admit $2 million budget blunder

It was the worst kind of news for parents with kids at STEP Academy, the troubled charter school that is on the brink of collapse after an expansion into Burnsville wiped out its financial reserves.

At Tuesday night’s board meeting in St. Paul, a financial adviser told a packed room of worried parents that the budget deficit for STEP — one of Minnesota’s largest charter schools — had ballooned to $2.1 million, a seemingly insurmountable obstacle to the school’s recovery.

The figure was confirmed during the meeting by Paul Scanlon, the school’s new chief operating officer, who told parents he couldn’t predict whether STEP would survive.

If STEP shuts down, it would be the largest charter school failure in Minnesota history. So far this year, nine of the 181 charters schools operating in the state at the beginning of 2024 have closed, the most since the first charter school failure in 1996, state records show.

But at a special board meeting Thursday night, Scanlon said the adviser “misspoke” and apologized for the consternation created by the blunder, which was widely reported by Twin Cities media, including the Minnesota Star Tribune. According to documents released Thursday, the school is now expected to finish the year with a deficit of $34,136.

“I regret the confusion and concern caused by this news coverage,” Scanlon said in a letter to school employees and board members. “We can and will do a better job at explaining, overseeing, and shaping our financial situation.”

STEP isn’t off the hook yet. The school, which serves 783 students at its campuses in St. Paul and Burnsville, remains on probation after being repeatedly cited for contract violations by Innovative Quality Schools (IQS), the nonprofit that oversees the school as an authorizer for the Minnesota Department of Education.

In an Oct. 3 letter, IQS informed school officials that the authorizer’s board will meet early next year to decide whether to “extend, terminate or non-renew” the school’s contract. IQS said the decision will be based on several factors, including its progress on a lengthy corrective action plan and the school’s projected financial status in 2025 and 2026.

“STEP Academy is in a financial crisis,” IQS warned in the letter. “If the board does not take sufficient and responsible action, the school will be unable to continue operations.”

One of the authorizer’s concerns was resolved Thursday night when the board accepted the resignation of Superintendent Mustafa Ibrahim, who served as the school’s top administrator since 2012. Two STEP board members also stepped down.

IQS first placed STEP on probation for contract violations in 2020. Most of its complaints have centered on Ibrahim’s actions, with IQS accusing him of operating without proper board oversight and making unilateral decisions that have sometimes hurt the school.

The situation didn’t reach crisis levels, however, until the costs of the school’s 2022 expansion into Burnsville wiped out STEP’s financial reserves. Its fund balance, the most critical indicator of a charter school’s financial health, fell from $2.7 million in 2022 to $54,461 in 2023, state records show.

In a 2023 letter to the school, IQS said STEP “significantly overspent” on renovating the Burnsville facility. It alleged that Ibrahim violated procurement rules by entering into budget-busting agreements without first obtaining board approval.

In a statement to the Star Tribune, Ibrahim blamed STEP’s financial problems on IQS. He said the nonprofit has abused its power by creating “unnecessary barriers and distractions” that have destabilized the school. Ibrahim accused IQS of attempting to “wrest control” of the school and replace its Black leaders with “hand-picked white professionals.”

In response to Ibrahim’s allegations, IQS said in a statement that its repeated interventions were aimed at ensuring the school operates within state guidelines and lives up to the promises made in its contract with the nonprofit.

In his brief letter of resignation, Ibrahim did not offer a reason for his resignation.

“My time leading STEP Academy has been the most rewarding period of my career,” Ibrahim said in the letter. “Together, we have established new standards for culturally responsive and inclusive learning environments.”

On Thursday, IQS said that the board’s decision to accept Ibrahim’s resignation removes one of its concerns about the school.

“While the school has made progress in addressing its financial deficit, it remains important that the board be diligent in carrying out its fiduciary responsibilities,” IQS said in the letter.