A $2.1 million deficit at STEP Academy may make it the largest charter school to close in history

CATHY WURZER: Our top story, a Minnesota charter school is on the brink of closing. Last night at a board meeting for Step Academy, our news partners at KARE 11 reported that two board members resigned, and the finance director admitted the school is bleeding cash. At the beginning of the school year, its deficit was $800,000. It's now $2.1 million.

If Step Academy closes, the Star Tribune reports, it would be the largest charter school failure in state history. It brings up the question, how do we prevent this from happening in the future? We're going to talk to a state lawmaker about that in a few minutes. But first, I want to paint a picture of how Step Academy got to this point.

Star Tribune reporter, Jeffrey Meitrodt, joined me on Morning Edition to explain.

JEFFREY MEITRODT: This is primarily a school that accommodates East African community, a lot of Somali students. It's 99% Black. A lot of the charter schools have had a lot of success in that kind of programming where they appeal really culturally to a specific community.

CATHY WURZER: There are a number of Minnesota charter schools that are financially struggling or closed because of financial trouble. Why is Step Academy so deep in red ink?

JEFFREY MEITRODT: Well, they decided to open a second campus in Burnsville in 2022, and they really bungled it. Charter school leaders are not real estate professionals. And all too often when they expand, they do it in ways that just economically don't make any sense. And here they picked a very high priced piece of real estate. They spent a lot of money. I mean, I've heard as much as a million bucks on renovations, and it just sucked all the money out of their financial reserves and left them with nothing.

They've also been very bad at some really basic stuff, like submitting the proper enrollment numbers to the state. So they got overpaid almost a million last year by MDE, and they had to pay it back. So it's just been one sort of catastrophic financial blunder after another.

CATHY WURZER: Charter schools, as you know, have to have a nonprofit sponsor and Step Academy's sponsor is Innovative Quality Schools, IQS, and I'm wondering, what does IQS say about all of this?

JEFFREY MEITRODT: To me, this is really the fundamental paradox of this whole story. And one of the reasons that we've been covering it is that the problems at this school really illustrate the weaknesses of charter school oversight here in Minnesota. IQS has been calling out step for significant financial oversight problems since 2019. But for five years, they continued to renew the contract for the school despite these ongoing concerns about how it was being run, specifically by its executive director and how the board was giving him way too much latitude to do pretty much whatever he wanted. So there were no guardrails.

But they could have taken stronger action much sooner. But like many of these charter schools, they seem to give them way too much rope, and then the next thing you know they have to shut down. So it's like our system here of oversight in Minnesota is very weak, where these authorizers can make suggestions on what schools are supposed to do, but they don't really have the ability to force change.

And so that means that if a school simply doesn't have the right leaders, ultimately the only thing they can do is shut them down, terminate their contract. Real oversight is kind of a two way street. It means the authorizers would actually be able to force change. And here that's not the situation.

CATHY WURZER: I'm wondering, why is Step Academy's superintendent accusing IQS of racial bias? How does that fit into the picture?

JEFFREY MEITRODT: Well, sometimes if you don't have a good defense, you got to play offense. And so that could be exactly what's going on here is that he doesn't have a good explanation for all these terrible mistakes. So he's lashing out the only place he can and blaming the group that's pointing fingers at him.

When I've talked to people inside the school, there's a wide acknowledgment that the school has made terrible mistakes and that they are at the feet of the superintendent. At the same time, he is a very beloved figure within this school community. A lot of parents are sending their kids to the school because of him. He is a very charismatic leader. He is very likable.

And this school has done some very good things for many, many of the Somali students who go there. As one of the parents pointed out to me, some of these kids have gone on to Harvard. They've got a great graduation rate. So it's not like the school has been in total abject failure. There's a lot to like here, too.

CATHY WURZER: That was Star Tribune reporter, Jeffrey Meitrodt, who's been covering this story. Joining us right now live is DFL State Senator Mary Kunesh, representing the New Brighton area. She's the chair of the Senate Education Finance Committee. Senator, welcome.

MARY KUNESH: Good afternoon. Thanks for inviting me on today.

CATHY WURZER: And thanks for taking the time. So I'm sure you probably already read the Star Tribune article about this whole thing. And they report that this year nine charter schools have closed, which is the most charter school failure since, what, 1996, I believe. What does that tell you?

MARY KUNESH: Well, that tells me that we need to really look at probably some kind of reform when it comes to charter schools, to make sure that there is real, authentic transparency and oversight for some of these schools as, first of all, that they're viable within the community. So making sure that there really is a need for a school such as is being proposed, and that they do have the kind of expertise at that school financial level to make sure that those schools are going to be able to use the dollars that they get from the state and other places in the best way possible.

CATHY WURZER: As you heard Jeff Meitrodt talk about this situation, there apparently is just way too much leeway that the authorizing nonprofit-- just there's no mechanisms to force change. But as you all know, lawmakers have-- you've been around for a while. I mean, the charter school system was set up to allow for some leeway, some creativity to break the mold, as it were.

So how do you balance that with trying to force some changes and maybe put some guardrails around some of this?

MARY KUNESH: Sure. And I can appreciate the spirit of charter schools. I was a teacher for 25 years, and I remember a couple times teachers and I, we'd say, oh, we should start our own school and do it right.

But the developments around the Step Academy is really heartbreaking. And it's really sad to see not only the charter schools, but the schools across the state that have had to close for different reasons. So what we really are looking to do is to really monitor the situation as it progresses.

And we've been talking about this at the legislature for a couple of years. What can we do to support that? But we can also look for at the challenges that the charter schools are facing across because each of those schools are really unique. And some of the things that we have done just in this last session, the legislature passed charter school reforms that require charter schools to set minimum qualifications and to provide training for administrators. So making sure that the people that are doing those kind of jobs have the training and the expertise and the resources that they need to be successful.

And then we also created something that establishes a procurement policy to safeguard those public dollars. So as the reporter said, this school specifically bought some very pricey real estate. And was that the best way to do this?

And then we have legislation to implement stronger conflict of interest provisions. And that's going to enable the authorizers to hold those charter schools more accountable.

CATHY WURZER: I'm wondering, some of your colleagues want a moratorium on new charter schools. Would you support that?

MARY KUNESH: I think that's something that we really do have to look very closely at. I think it would help if we were able to just take a pause and look at the landscape that is charter schools in Minnesota, assess those that are struggling already, those that are successful. How are they doing it in a really good way that might be adaptable to other charter schools that are struggling? And so I think it's part of the conversation, but I think it needs to be a much deeper and broader and really transparent conversation across Minnesota.

CATHY WURZER: All right, we'll see what happens next session. Thank you, Senator. Appreciate your time.

MARY KUNESH: Sure.

CATHY WURZER: We've been talking to DFLs State Senator Mary Kunesh, who's the chair of the Senate Education Finance Committee.