"Quite simply, if we do not take dramatic steps right now to right ourselves, we will not be able to operate," Knudsen told the School Reform Commission.
The facts are sobering: The district faces a budget gap of $218 million for the 2012-13 academic year. Left unchecked, the district's deficit would climb to $1.1 billion by 2017, school officials have said.
But that could never happen, Knudsen said - the district's credit would not support that much debt.
And if Mayor Nutter's property-tax proposal, dubbed the Actual Value Initiative, does not pass City Council?
"It is not clear that we could, in fact, open schools this fall," Knudsen said.
Knudsen said that district staff had begun analyzing how they might cope if Council rejects Nutter's plan and that the analysis was "quite scary."
He and SRC leaders said that the district was in its current financial bind because in the past, one-time fixes were used to fill gaps and cover for spending that exceeded revenue.
"There are no more easy solutions available to us," Knudsen said. "There is no scenario under which we can continue operating under our current model while delivering safe, quality education to all our students."
Even in a best-case scenario, officials are banking on a whopping $156 million next year in givebacks from the district's five unions. Teachers union president Jerry Jordan has already balked at more concessions.
Leaders are also planning to squeeze $50 million out by "modernizing" custodial services, maintenance, and transportation. Members of the district's blue-collar union have already received notices of pending layoffs and worry that their jobs may be privatized.
But there were few classroom cuts in the 2012-13 budget. Schools lost more than $300 million last year.
"After careful analysis, we concluded that we simply could not cut more from the current structure without sacrificing the fundamental things that make public education meaningful: some limited music, art, and sports, alongside core educational programming and services for students with special needs," Knudsen said.
The district is not planning on cutting special-education teachers, bilingual counseling assistants, or school police. But reduced federal funding under the Title I program for low-income schools will mean some school cuts, including a deep reduction in summer school and some supplementary counseling positions.
Knudsen is also proposing closing 40 buildings - though not necessarily 40 school programs - in 2013 and six more annually through 2017. That would save about $33 million.
As the city's charter schools grew, the district lost 50,000 students in the last decade, but its building footprint has not changed. Many schools are well under the 85 percent utilization rate the SRC wants to get to.
"The cost of maintaining all that space is money that could be going into classrooms," SRC Chairman Pedro Ramos said.
No schools have been identified for closure, Knudsen said; that list won't be ready until late summer or early fall, and then the community will have several months to weigh in before the SRC votes to shut any facility.
Ramos and chief academic officer Penny Nixon said it was vital that principals know exactly what they were dealing with, budget-wise, before the start of school.
"Failure to deal with financial issues up front caused a lot of disruption," Ramos said.
To make ends meet next school year, the district will have to borrow even more money, Knudsen said. It already spends 10 cents of every dollar on debt service.
The plans - financial and turnaround - drew strong criticism from an audience of more than 100.
Parent Rebecca Poyourow said the district was resorting to "crazy-making" rhetoric and unfairly connecting the reorganization plan with the budget.
"It is at best foolish - and at worst devious - for you to choose this moment of fiscal crisis to foist a poorly conceived and primarily ideological reorganization scheme on Philadelphia schools," Poyourow said. "This move smacks of manipulation."
Poyourow, like others, asked why the district would want to replicate the failed experiments of the early 2000s, when the district gave dozens of schools to private managers.
"I have no confidence in this reorganization plan. It makes no fiscal sense, is educationally disastrous, and I would not want to trust my children to it," she said.
Some of the aims of the transformation are good, said parent Christine Carlson - principal autonomy and a more flexible central office, for instance.
"I just hope your heads don't fall prey to the bulk of corporate-speak that has been brought upon us and infused in this transformation blueprint," Carlson said.
Helen Gym, a district parent and education activist, addressed Knudsen - whom the SRC hired in January to overhaul the district - directly.
"God bless you for taking the job. But I have to tell you that I expected something different," Gym said, referring to Knudsen's transformation plan.
Parent Gerald Wright said he was concerned about the lack of parent input into the overhaul blueprint. He wondered whether parents and children were truly considered or were "merely the subjects of this experiment."
Knudsen has said the plan was not privatization, that for-profit companies were not wanted, and that a "lean central office" and the SRC would still have say-so over schools.
The School Reform Commission is scheduled to adopt a final budget on May 31. Several more budget hearings are scheduled for sites around the city between now and the end of the month.
Contact Kristen Graham at 215-854-5146, firstname.lastname@example.org or on Twitter @newskag. Read her blog, "Philly School Files," at www.philly.com/schoolfiles.