One of the largest charter schools in Minnesota is on the brink of collapse after its leaders gambled on an expensive and allegedly improper expansion into Burnsville that put it in a deep financial crisis.

STEP Academy, which enrolls 783 students at its campuses in St. Paul and Burnsville, has been 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. 4 letter, IQS warned STEP leaders that the school's finances are in "an incredibly fragile state." To survive, IQS said in the letter, STEP must take immediate and significant action, such as closing one of its two campuses.

A week later, after IQS accused school leaders of failing to make necessary adjustments, the nonprofit threatened to terminate STEP's contract in a follow-up letter. Such actions have typically led to the closure of charter schools because they are not allowed to operate without an authorizer.

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.

In a five-page statement to the Minnesota Star Tribune, longtime school director Mustafa 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."

"The financial challenges we face are directly linked to IQS's incessant meddling in our decision-making processes and erosion of our autonomy," Ibrahim said in the statement. "Their deliberate and discriminatory practices have consumed our time and resources, diverting our focus from core educational priorities."

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 crisis has roiled STEP Academy, with some teachers blasting administrators and seeking new jobs amid fears STEP will soon close. Other employees and parents have defended the school, noting its academic program has been successful for many students, with graduation rates reaching 100% in recent years.

"We have students who have gone on to Harvard," said Mohamud Abdi, whose two children attend STEP. "I need my kids to finish here. We have confidence in this school."

Switching oversight

State records show that 99% of STEP's students are Black. Most students are recent immigrants from Somalia and East Africa, according to school employees.

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.

"It is unfortunate that Dr. Ibrahim has made unfounded claims of racial bias," IQS Board Chair Steve Kelley said in a statement. "He is wrong. IQS and its leadership team have acted professionally and impartially. I am optimistic that ... the school will continue to independently provide its academic program that is both responsive to and highly valued by its students and families."

The fight between the school and its authorizer demonstrates the limits of Minnesota's charter school oversight system, which relies on 12 nonprofit groups and educational organizations to enforce rules aimed at making charter schools successful.

Some of those authorizers oversee extraordinarily successful schools and have received high marks from the state; others have been criticized for continuously renewing the contracts of failing schools. In its most recent state review, IQS placed in the middle of the pack with a satisfactory rating.

The Education Department "does not have any ongoing concerns about IQS's performance as an authorizer as it relates to autonomy," department spokeswoman Sam Snuggerud said in a written response to questions.

To resolve the contentious situation, STEP's board tried to switch oversight chores to Pillsbury United Communities, one of the lowest ranked authorizers in Minnesota. The Education Department denied the move in April, saying Pillsbury United's application failed on several levels, including a "material misrepresentation" about the state of STEP's leadership and governance, records show.

Pillsbury United did not respond to a request for comment.

Debate over finances

IQS first cited STEP's board for weak oversight in 2019, saying it failed to respond when Ibrahim repeatedly engaged in "improper management practices." Despite ongoing concerns, IQS has continued to renew the school's charter for the past five years.

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. This year, the school is operating at a deficit of nearly $800,000.

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.

"I don't think we were ready to expand," said former STEP literacy coordinator Maureen Nelson, one of 13 employees who were laid off this month to save money. "I know some grades had waiting lists, but nothing that would necessitate opening a brand-new location."

The school's enrollment projections turned out to be far too optimistic. STEP officials expected more than 1,000 students to enroll this year, records show, but fewer than 800 showed up, including 288 in Burnsville. IQS said STEP also had to repay $800,000 to the Education Department for overstating its enrollment last year.

In his statement, Ibrahim said both IQS and the Education Department approved the Burnsville addition. He denied breaking any rules.

"We meticulously followed all proper channels for expansion," he said.

Ibrahim blamed the lower enrollment figures on the unexpected departure of dozens of families who decided to move back to East Africa.

Some longtime STEP employees are suspicious of IQS' motives and support Ibrahim's claims of a power grab.

"There is no fraud here — there is no mismanagement," said Sadiq Mohamud, a nine-year STEP employee who was laid off as transportation and safety director this month. "This school is doing well academically. The community is behind it. So why in the world are they thinking of closing it down?"

Others are critical of Ibrahim's financial management, saying his efforts to expand backfired and hurt the school's ability to achieve academically. STEP's proficiency ratings in math, reading and science are well below state averages.

Traci Moore, who left her job as assistant superintendent of academics at STEP in 2023 to take over a charter school in Maple Grove, said she sought more control over the school's finances because of Ibrahim's "unethical" management practices. She faulted him for the recent layoff of several intervention teachers who worked with the lowest performing students instead of doing more to shrink administrative costs, which were nearly twice the state average last year, records show.

"It's a complete mess," said Moore, who spent seven years at STEP.

Ibrahim, who earns $170,000 a year as STEP's superintendent, said in his statement that he recently agreed to a 30% pay reduction to "share in the sacrifices being made during this challenging period."

To address management problems, IQS this year demanded that STEP hire a chief operating officer and strip Ibrahim of his some of his responsibilities over finance, operations, employment, and human resources. STEP's board agreed to the moves but has yet to redefine Ibrahim's responsibilities.

Robert Wedl, who served as Minnesota's education commissioner in the 1990s and recently worked as a consultant to STEP's board, said other charter schools have recovered after a period of deficit spending.

"I have respect for both IQS and also Dr. Ibrahim and find the current situation to be highly regrettable," Wedl said.