The plan - subject to public comment and SRC approval - would close 40 schools next year and 64 by 2017, move thousands more students to charters, and dismantle the central office in favor of "achievement networks" that would compete to run groups of 25 schools and would sign performance-based contracts.
Knudsen, in a news conference, avoided references to the "Philadelphia School District."
"We are now looking at a much broader definition of education in the city that includes not only district schools but other schools as well," he said.
Mayor Nutter hailed the plan, which he said would push control over education down to the school level.
"If we don't take significant action, the system will collapse," the mayor said at a separate news conference. "If you care about kids and if you care about education, if you care about the future of this city, that's what we need to all grow up and deal with."
Teachers union president Jerry Jordan decried the radical restructuring as the SRC divesting itself of many of the core responsibilities of public education. He called it a "cynical, right-wing, market-driven" blueprint.
"This is totally dismantling the system," Jordan said. "It's a business plan crafted to privatize the services within the School District."
Forget the command-and-control district structure. It's archaic and it doesn't work, officials said.
Instead of orders coming from a large central office that runs 249 schools, much of the power would be concentrated in the new achievement networks.
Those would represent "a breaking-apart of the district," Knudsen said. They would be "a group of people who choose to do business with the SRC and the central office to run" from 20 to 25 schools organized either by geography or by some other theme.
Successful principals or district staff could apply to run an achievement network. So could charter organizations, or universities, or a combination of those groups.
Principals would answer to the achievement networks, although they would remain district employees. The achievement networks would have contracts with the SRC, and would have to meet performance goals or risk being replaced.
The achievement network structure "creates an entrepreneurial approach, a flexibility, a nimbleness, a willingness to experiment," Knudsen said.
The current academic divisions - formerly called regions, clusters, and districts - will be gone as of this summer. Pilot achievement networks will be in place this fall, with a formal rollout in 2014.
Schools would have much more autonomy, with the ability to choose their own curriculums.
Though there is some precedent for this kind of work - officials pointed to the decentralization in New York City public schools - Ramos noted that what Philadelphia is proposing "is different from what many other places are doing."
The central office, already half the size it was a year ago, will shrink further, from over 1,000 employees a few years ago to about 200 in the new model.
The central office will keep responsibility for things like compliance, finance, accountability, strategic planning, and government relations.
A shared-services department will handle things like special education and food services. Schools not managed by the district could purchase these services, too.
A new direction
When district, city, and charter officials signed the Great Schools Compact late last year, they signaled the direction Philadelphia public education was going in - closing seats in low-performing schools, and expanding high-performing ones.
Labels - whether a school is run by the district or by a charter - matter much less now.
Officials said that they wanted to continue expanding charters, and that they expected that by 2017, 40 percent of the city's roughly 200,000 students would be enrolled in a charter school. Now, it's about 25 percent.
School closings are a key point of the plan, which would ultimately be overseen by a permanent superintendent, who could be in place by the fall.
Knudsen said the district aimed to close 40 buildings in June 2013, and then six each of the next four years. It costs about $850,000 to run every building, and the district has too many underutilized, aging schools.
"If we don't close these schools, and we just keep them up - and a lot of them have very low utilization - we're blowing about $33 million," Knudsen said. "We can't afford that."
Closing 40 schools doesn't necessarily mean shedding 40 programs, though, Knudsen said. Colocating multiple programs in a single building is possible, he said.
Officials are drawing up a list of closure criteria; an announcement of the schools is expected in the summer.
That the district is proposing to shed roughly one-quarter of its buildings worries Jordan.
But Mark Gleason, executive director of the Philadelphia School Partnership, a nonprofit started to raise funds to expand seats in high-achieving schools, whether they're district, charter, or parochial, was encouraged.
"It's a scary number, but it's a promising number," Gleason said. "It shows a level of seriousness that we haven't seen in prior years."
Massive money problems are forcing the SRC's hand.
For years, the district spent money it did not have, the current administration now says. When federal stimulus money dried up and state funds were slashed at the beginning of fiscal 2012, the district had to lay off thousands and implement draconian cuts at the school level.
"Our predecessors borrowed money to pay for recurring expenses, and even if we wanted to do that now, I don't think we can," Ramos said.
Left unchecked, the district's budget deficit would grow to $1.1 billion by 2017, officials said.
Officials on Tuesday outlined a $2.5 billion 2012-13 budget, underscoring that the district, already saddled with a heavy debt load, will have to borrow more to make ends meet next year.
There is now a $218 million shortfall for 2013, up from the $186 million gap announced earlier. (The difference comes from a recent ruling by the State Tax Equalization Board that means the district gets less money than it was banking on.)
To fill the budget gap, leaders are relying on a $156 million savings from personnel costs - namely, benefits and wage concessions from unions including the Philadelphia Federation of Teachers.
Jordan, of the PFT, said only that he would "negotiate with the School District when our contract expires" - in 2013.
And although the number of charter school students will grow, charter costs will be reduced by $149 million because per-pupil payments to charters, as mandated by the state, are based on district spending in the prior year.
The district is also planning on saving money by "modernizing" things like custodial services and transportation. The district has already given layoff notices to the members of Local 32BJ, District 1201 - its blue-collar workers.
It has indicated it must either get $50 million in concessions from that union or go elsewhere for the services.
Given the bare-bones level schools are operating on, Knudsen said he wants to hold the line on further classroom cuts.
But there are no promises. The district based its budget on receiving $94 million from Mayor Nutter's proposed Actual Value Initiative, which would reassess city properties to create more tax revenue. But its passage is far from a sure thing.
If it does not pass, "we have enormous, enormous problems," Knudsen said.
The current budget also does not take into account a recent court ruling about enrollment caps at the Walter D. Palmer Leadership Learning Partners Charter School, which could allow charters across the city to expand enrollments without district approval. Leaders said they would appeal the ruling.
The plan immediately drew mixed, but passionate, reactions.
The student organizing groups Youth United for Change and Philadelphia Student Union said in a statement that they were "deeply concerned about the direction the district is taking" and wary of a repeat of the failed privatization plan of the early 2000s.
Gleason, of the Philadelphia School Partnership, said it seemed to be "a very bold attempt to . . . start allocating resources in a way that puts student interests first."
Cecilia Thompson, an involved district parent, worried about the lack of detail.
"I'm not against change - this isn't working - but this plan isn't clear," Thompson said.
Susan Gobreski, executive director of Education Voters Pennsylvania, said that the public, especially teachers and principals, must seize this opportunity to weigh in, even though many feel mistrustful of the district.
"There is an opportunity here for people who care to step into it," Gobreski said. "We should make it the change we want it to be."
Whatever happens, it's make or break time for the school system, its leaders said.
"The School District has reached a point where it will either achieve fiscal sustainability and succeed at providing safe, high-quality schools or it will become a mere social program," Ramos said.
Contact Kristen Graham at 215-854-5146 or email@example.com or follow on Twitter @newskag. Read her blog, "Philly School Files," at www.philly.com/schoolfiles.
Inquirer staff writer Miriam Hill contributed to this article.