The phrase got past the editors because no one had any idea at all it was offensive, honestly. The editor got the outside groups involved because of that dichotomy ... I think he honestly had good intentions.
The writer described the event (sort of a "reading is fun!" sort of thing, if I remember correctly, with games and skits and the like) as having a "circus atmosphere." Which to him (and me, and all the rest of us) meant "fun and games and excitement!" and apparently to the other group meant "chaos and poking fun at their heritage." The term was called demeaning.
To be honest, I think that unless the event was an actual carnival, the word choice was imprecise at best, and moderately insulting (although not explicitly racist) at worst.
While some people think acrobats and elephants for circuses, others think circus freaks and shysters. The term is
often used as a pejorative (e.g., "media circus"). For that reason alone, I think it was a very poor word choice.
I don't think the term itself is racist, but I can see how it would be perceived as demeaning. While the journalist didn't mean to use it as a racist term, I can see the potential for discomfort there, especially if you make the connection between some circus animals (chimps, monkeys) and how those have
been used as racial slurs.
I can see why the group was upset, although they did not express themselves very well. I think it likely they were uncomfortable and reacting to feeling demeaned, but instead of spelling out their reasons for feeling that way (and it's possible they didn't quite know how to express that), they cried racism without really demonstrating why they thought it was racist.
So while I think both groups were at fault, I do think that it is a journalist's job
to know language (and that includes slang and potentially racially-charged language) and even stripping away all that, circus atmosphere is still a poor descriptor of the event you described.