The Minnesota School of Science is folding.

The two-year-old charter school told parents in a letter Thursday that it will cease operations after an unfavorable ruling this month in a court dispute over lease payments with the Minneapolis school district. The ruling forced it to leave the district-owned Cityview school building.

"I think the people that are suffering the most are the kids and their families," said Board Member Gene Scapanski. "This was something unique for them, and they had something very special, and now they're going to return to schools that were not serving them very well before."

The North Side school boasted of rising scores on state tests with its math- and science-focused curriculum. In its first year, it got the state lease aid normally paid to charter schools. But the state changed its interpretation of the law and withheld payment last school year.

The state cited a conflict-of-interest law that bars paying lease aid to charter schools in some cases when the school has the same landlord and authorizer. The Minneapolis district served both roles for the School of Science.

But a former legislator who sponsored the 2009 charter reform bill that contained the conflict clause expressed bewilderment over the department's interpretation. She said the law was generally intended to bring charter schools and school districts into greater collaboration, including leasing empty district buildings to charters.

"When this whole issue came up with Minneapolis, I was like 'what?' " said Kathy Saltzman, who chaired the Senate charter school subcommittee. "I wondered if [the law] has been changed, because this was not my intent."

The Minneapolis district, to which the charter would have paid the lease payments as landlord, unsuccessfully sued the Minnesota Department of Education to challenge that ruling, and later failed in an attempt to amend the law in the last legislative session.

Meanwhile, the school paid only a small amount of rent. It then located another potential authorizer to relieve the conflict issue, but the district blocked that move, citing unresolved issues.

The school said it was unable to find an alternate site convenient to its enrollment of about 300 students, about a third of them from nearby suburbs.

After the district pressed it to pay the rent or vacate the Cityview building, the charter sued, asking Hennepin County District Court to declare that the state's failure to pay rent aid absolved it of normal lease payments. But a judge sided with the school district and ordered the school out.

Scapanski said the state needs to rethink its interpretation of the 2009 law, and the Minneapolis school district needs to spend more time helping the charter schools it authorizes. "We were caught in the middle," he said.