Three years ago, Dugsi Academy was flush with cash but failing academically.

Now, two years into a costly school improvement effort, the St. Paul charter school faces a long list of unpaid bills that may threaten its very existence.

The K-8 school south of the Minnesota State Fairgrounds had $2.9 million in reserve in July 2015. The fund balance dwindled to just $22,000 last summer and is expected to be hundreds of thousands in the red once the books close on this past school year.

“The school has a financial crisis right now,” said Ahmed Elmi, who heads a different charter school and recently rejoined Dugsi’s school board.

MONEY DRAINED OUT

Dugsi ended the latest school year 10 days early to save on payroll. It’s been penalized for missing payments to the state pension plan for teachers. And it’s engaged in a bitter standoff over billing with its longtime bus provider, Minnehaha Transportation — one of 23 vendors who are owed money, according to a June report to the board.

“We have been really quite shocked with what has taken place. The money has been drained out,” said Jeff Dufresne, who sold his share of the bus company to his business partner last year.

The financial woes have coincided with efforts to improve the school’s academics.

To ensure enough cash on hand to pay bills and weather storms, a school board policy calls for a year-end fund balance of at least 20 percent of annual spending, or roughly $1 million. When that number approached $3 million in 2015, the board set about spending much of its reserves to improve the school.

But in 2016, after 6 percent of students tested as proficient on the state math test and 9 percent passed in reading, the school’s authorizer called for an outside group to turn the school around.

“They were just sitting on buckets of cash but no one was learning,” said Antonio Cardona, who oversees Dugsi and 18 other charter schools for Pillsbury United Communities, one of several authorizers in the state.

Charter school veteran Mary Stafford, with her company True North School Network, took over as Dugsi’s superintendent in 2017, inheriting a $1.4 million fund balance.

After her first year, reserves were down to just $22,000. This summer, Stafford said, they’ll end up between $200,000 and $300,000 in the red.

A balance sheet that Dugsi’s financial management firm presented to board members last month painted an even more pessimistic picture. It detailed $938,000 owed to employees and 23 vendors with just $169,000 in state aid on the way.

Stafford said she’s hired a new accounting firm to clean up the books and that all but seven vendors would be paid soon, once the state delivers the final 10 percent of Dugsi’s yearly funding.

‘TOUGH’ TO WAIT

Those unpaid vendors include Osman Ali, whose catering business has been feeding Dugsi students since the school opened in 2005.

This past school year was the first that he was not paid on time, Ali said. As of late June, he said he was owed around $36,000.

“It’s kind of tough,” he said. “A small business cannot wait for a long, long time.”

Designs for Learning, which provides financial management and special education and other services, said it hasn’t been paid in full in any month since November 2018.

The school’s nurse quit in June because the school hadn’t paid her since December.

The Teacher Retirement Association said last month it would intercept more than $10,000 of Dugsi’s state aid to collect on unpaid contributions and late fees.

The bus company, according to Dufresne, is owed $180,000, but the school disputes that. An attorney for the school sent him a cease-and-desist letter last month asserting the company is owed less than $124,000.

Stafford claims Minnehaha Transportation has been overcharging the school. Dugsi’s analysis of state data showed the school pays more for transportation per student than any of its peers.

Stafford’s company, too, is on the list of unpaid vendors. She was due over $44,000 as of last month.

“Most (charter schools) don’t have money, and we now just joined that group,” said Shukri Hassan, the school board chairwoman.

BOARD WATCHING CLOSELY

Hassan said the board was “spoiled” by the school’s previous operators, whom she said “weren’t doing academically well but they were really good with the finances.”

Now, Hassan said, the board is keeping a closer eye on the school’s accounts. And so is the school’s authorizer.

At the end of May, Pillsbury directed Stafford to produce a detailed, three-year financial plan for rebuilding the school’s reserves.

In a letter, the authorizer warned that the school’s low fund balance “significantly threatens the sustainability of the school and the academic progress being made with its students.”

SCHOOL WAS ‘A MESS’

Stafford acknowledges she spent heavily to meet Pillsbury’s demand for a speedy turnaround. She bought Chromebooks and curriculum, invested in professional development and hired more staff at higher salaries.

“The school was a mess, so it took a lot to clean things up,” she said.

Stafford said the school now has more involved parents and happier staff and has addressed discipline disparities that drew the ire of the state’s human rights commissioner.

Meanwhile, math and reading scores were up slightly in 2018, and Stafford expects more improvement once the 2019 scores are made public.

“We have got excellent outcomes to show. It was worth the investment,” she said.

However, Stafford said she should have responded more quickly when the school wasn’t meeting its financial targets.

“I did lay off staff but I was more conservative than I should have been. I should have made a swifter decision,” she said.

One year ago, there were two Minnesota school districts and four charter schools in “statutory operating debt,” which means they finished the year with a deficit of at least 2.5 percent of annual spending.

Elmi said Dugsi will join that group this year.

Stafford hopes philanthropic organizations will step in to sustain the school.

STAFFORD’S PAY

Stafford’s compensation has accounted for a significant portion of Dugsi’s increased spending since 2016-17.

The school paid True North $39,500 per month in the first year and $36,000 per month last year, which pays for four management positions.

Some of that money has gone to Stafford’s family members, including her son, Jim Stafford, who is the school’s operations director. Her brother, Jim Mulvahill, who lost his law license in 2005 for misappropriating client funds, also works for the company.

While waiting for the bus company to get paid, Dufresne complained to Pillsbury and the Minnesota Department of Education about True North’s family ties. Pillsbury says it has no concerns because Stafford’s family members are not directly employed by the school.

“There’s nothing wrong with having a family business,” Mary Stafford said in an interview.

However, the Minnesota Department of Education did instruct Stafford and her employees to return to the school over $4,700 in reimbursed expenses because they are not employees of the school.

True North also operates another charter school, LoveWorks Academy, for around $237,000 this year, or 12 percent of its revenue.

Stafford sought a service contract in spring 2018 with a third charter, El Colegio, but dropped the proposal because she couldn’t get enough control over the school, according to board minutes.

Cardona said it’s common for charter school operators to manage multiple schools at once. And he said True North’s rates are comparable to what other managers charge.

Still, Stafford said she and the Dugsi school board are working on a smaller management contract for the 2019-20 school year.

Total administrative spending at Dugsi in 2017-18 was $1.1 million — 20 percent of Dugsi’s operating budget. It was $822,000 the year before Stafford took over and $534,000 the year before that.

Cardona said Dugsi’s financial woes are “certainly concerning” but it’s expensive to turn around a failing school.

“Our anticipation is that the school will be able to overcome this hurdle,” he said.

‘VERY HAPPY TEACHERS’

Sam Pfeifer, a Dugsi administrator and former teacher and board member, said Stafford’s turnaround work has made a difference.

“If you went into the school these past two years it really looks like a great school. You’d peek into any given classroom and you’d see kids working hard, engaged, happy, a lot of very happy teachers,” he said. “It’s been a very great place to be.” Related Articles 2020 National Blue Ribbon Schools recognizes three in east metro

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Dugsi has almost 300 students, virtually all of whom are recent immigrants from East Africa.

Hassan, the board chair, said she’s pleased with Stafford’s performance, finances aside.

“You hire someone to do job. Probably they did the best they can for the education but there are a lot of financial mishaps that we didn’t watch closely,” she said. “Other than that, we are happy that the school is operating well.”