The district will borrow $218 million to meet expenses, but officials say they will be able to restore structural balance - not spending more money than they take in - by 2013-14.
And if the $94 million expected from Mayor Nutter's Actual Value Initiative tax plan or equivalent money from another source doesn't happen? More borrowing appears to be out.
Knudsen said the district can borrow the $218 million. But "we don't have the capacity to go much beyond that, I don't believe," he said.
Before the meeting - in a protest held outside district headquarters - and inside the session, members of the public expressed frustration with periodic chants of "save our schools," sign-waving, shouts, and whistles.
"We don't trust you," testified the Rev. Alyn Waller, pastor of Enon Tabernacle Baptist Church. "We don't trust what you say is true."
Protesters were angry about a proposed complete overhaul of the district, which would organize schools into "achievement networks" potentially run by outside organizations. That proposal was not voted on, and a plan to pilot one such network in the fall has been scotched.
But there was a loud outcry over the budget, too.
In recent days, 49 parent organizations from schools around the city took symbolic votes of "no confidence" in the budget. Citywide Home and School Council president Delores Solomon said the spending plan "fails to uphold the district's core mission to provide essential personnel and quality instructional resources to public schools."
School budgets have already been decimated by two rounds of cuts this year, and officials are trying to avoid further reductions.
But Knudsen, in a news briefing before the meeting, said this budget stretches the district to the limits of its financial capabilities.
"This is why we're incurring a $218 million deficit," he said. "We're borrowing essentially to maintain the academic programs in the schools. I don't know what else to do. I don't know where else we go. We are at the best level of service that we can provide within the context of the funds that we have available."
A coalition organized to oppose the budget and the overhaul blueprint angrily wondered why the district was asking the city but not the state for more money.
Chairman Pedro Ramos said that members would lobby Harrisburg for more funding, but that the SRC refused to repeat the mistakes of its predecessors - budgeting based on hopes rather than reality.
"This year's students were subjected to at least three rounds of budget cuts because the adults last year did what they what they wished for and what they wanted to hear, as opposed to planning responsibly to meet the needs of children the best that they could," Ramos said.
It was the actions of prior commissions and administrations that put the district in the shape it's in now - teetering on the brink of insolvency, Ramos said.
How bad are things? A few months ago, the newly reconstituted SRC found the district in such dire financial shape that without corrective action, the district would have run out of cash this month, then again in July, "and would have gone so far under on cash that it couldn't come back," Ramos said.
But cost-cutting actions taken by the SRC since January staved off disaster - for now.
The district is planning on $50 million in savings from modernizing its maintenance, transportation, and custodial services, and it has sent layoff notices to all 2,700 members of 32BJ, the union representing bus aides, cleaners, building engineers, and other blue-collar workers.
Workers fear their jobs will be privatized to cut costs. 32BJ and the district are currently in negotiations, and union leaders say they have proposed cost savings.
City Council passed a resolution Thursday saying it will hold up the SRC's budget until an agreement is reached with 32BJ. The first round of layoffs is scheduled to take effect July 1.
Ramos said that resolution does not affect the budget.
"We understand that there's a lot of sympathy in Philadelphia for unions," Ramos said. "But we are in a situation where we have to put the interests of our students - today's students and tomorrow's students - ahead of adults."
Negotiations with 32BJ continue, Knudsen said.
District leaders have also said they expect the Philadelphia Federation of Teachers to come to the table soon, though its contract does not expire until August 2013. The district is banking on $156 million in savings from labor contracts in its five-year plan.
PFT leaders have said they will not negotiate early or make any financial concessions.
"You can't say that you're just about education and you're just about the kids when adults all refuse to do more or give something up," Ramos said in the pre-meeting briefing. "We all share the circumstances in which we find ourselves today and in the next few years."
Ramos also questioned the motivation of the activists who protested at the meetings. "I think parents are often drowned out by existing adult economic interests," he said. He said that the coalition organized to oppose the budget was being fueled by unions, specifically by the PFT.
PFT president Jerry Jordan dismissed that sentiment, saying his union was helping to organize, but not putting words in anyone's mouth.
Dozens of city and School District police stood guard at the meeting. A few audience members were escorted out of the auditorium, but no arrests were made.
The crowd interrupted Knudsen and the SRC repeatedly throughout the meeting, which lasted just over two hours. Ramos tried several times to calm the audience, which spilled out of the auditorium and into an overflow area where video screens were set up.
At one point, someone in the crowd shouted, "This is our meeting!"
Jordan, in testimony to the SRC, pointed out some of what the district has already lost in the last two years - 1,500 teaching jobs, 360 counselors and student advisers, some sports, libraries, art and music programs.
"Instead of leadership and advocacy, all we hear from the SRC is deafening silence," Jordan said. "Our children cannot wait until the economy improves to get an education. They need safe schools and great programs now."
An emotional Helen Gym, a founder of Parents United for Public Education, said the SRC was being "understood through the lens of years of broken promises."
"Mr. Knudsen," Gym said, "you call these cuts painful. They're not painful. They're shameful."
Robert McGrogan, head of the district's principals union, decried district moves that he said "thrust us into reactionary mode yet again and will further disrupt the programs that we have planned for our students."
Brian Cohen, a district teacher, said he was addressing the SRC on behalf of his students.
"In my role I see the suffering every day: lack of resources for my students; inability of children to get medical care due to shortage of nurses; teachers unable to provide one-on-one attention due to increased class sizes; and more demands on everyone, leading to lower morale across the board," Cohen said. "This is not the bright future we promised."
Bottom line, Cohen said: "We can do better. We must do better. Please, let us help."
Contact Kristen Graham at 215-854-5146, email@example.com or on Twitter @newskag. Read her blog, "Philly School Files," at www.philly.com/schoolfiles.