SRC's Mr. Fix-It has a tall order but a proven record

Friends and colleagues say Thomas Knudsen, the retired CEO of the Philadelphia Gas Works, is an expert at fixing large, failing, dysfunctional organizations.

If that's true, he's perfect for his new job.

Knudsen, 69, took over Friday as chief recovery officer of the Philadelphia School District, a newly created, unprecedented position in which he's tasked with solving a destructive and evolving financial crisis.

"We have to get the vision and the mission for this organization framed, and move forward," Knudsen said in an interview. "That's what I did at PGW, that's what we're going to do here."

Knudsen (pronounced Kah-nude-sen) assumes the powers of both superintendent and chief financial officer in a district that faces millions of dollars in new, immediate cuts and a larger, structural shortfall in the future.

"He would be the first to admit he's not an education expert," said Steven Hershey, PGW's vice president of regulatory and external affairs, and who has known Knudsen for decades. But, he said, Knudsen is a highly intelligent, analytical executive who understands how large organizations work - or don't work, and how to repair them when they're broken.

School Reform Commission Chairman Pedro Ramos, who first contacted Knudsen about the job, said the board is seeking "a basic restructuring" of operations in the face of financial disaster.

Knudsen has no experience in education - and precedents for such an appointment are few.

One is in New York City, where in 2002 Mayor Bloomberg named Joel Klein, a former ranking Justice Department prosecutor, to lead the schools. Klein served eight years until 2010. He was replaced by Cathie Black, a former chairwoman of Hearst Magazines, who likewise had no education background. She resigned after 95 days.

Helen Gym, a board member of Asian Americans United and frequent critic of district management, said she was disturbed the SRC moved so quickly and quietly to create and fill a "recovery officer" position.

"I think the public should have had an opportunity to talk about it before it happened, and we didn't get that opportunity," she said. "This is an unprecedented role. What are Mr. Knudsen's powers and limitations? Who is he accountable to, and for what, in such a short period of time?"

On Thursday, district officials announced that having already slashed more than $629 million in jobs and programs, they must make $61 million in additional cuts by June. And that at the start of fiscal year 2013, they expect to face a $269 million "structural gap."

In Knudsen, the district turns to a man known as a discerning reader of both history books and balance sheets, a lover of opera, classical music, and theater, and who possesses the drive of a much younger person. At PGW, Knudsen typically worked 10 or 12 hours, then took paperwork home, colleagues said.

He's employed by the schools under a six-month contract that pays $150,000.

In 10 years as chief executive officer of PGW, Knudsen transformed the agency from a financial sinkhole to a sound company, imposing a discipline that restored investment- and financial-community confidence.

When he took over, PGW had an annual cash deficit of $60 million to $100 million from uncollected revenue, and operated a computer system that somehow failed to bill 50,000 customers.

"Financially, we were on the edge of the toilet," said Hershey, who recommended Knudsen's hiring to then-Mayor John F. Street. "Customer service, billing - it wasn't working. It was a mess. He identified the talent within the company who could help be change agents, then recruited others from outside as consultants or employees."

Knudsen said he would recruit consultants to help him make decisions on the schools.

He grew up in Pittsburgh, and earned a bachelor's degree in economics from Northwestern University and a master's in finance from Columbia University. He began his career in the New York City Finance Department and later worked in the management-services division of Deloitte & Touche, an international accounting and consulting firm.

At the start of the Vietnam War, he was a supply officer on a destroyer in the South China Sea.

At the district offices Friday, Knudsen met with top-level managers to introduce himself, offer an outline of his plans, and solicit their suggestions. His overriding goal is to stabilize the finances, to put in place budgets, policies and procedures that create a foundation on which the next superintendent can build.

"It's certainly not going to be easy," he said, adding, "We cannot allow it to fail."

As a consultant, Knudsen represented customers in regulatory proceedings - often fighting for the little guy against big utilities. He was regularly retained by agencies like Community Legal Services of Philadelphia.

"There's a huge difference between the school district and PGW," said supervising Energy Unit attorney Philip Bertocci, who worked with Knudsen at CLS. "Frankly, PGW was probably a playpen compared to the school district, as far as the political forces that are operating there."

Knudsen, he said, is unlikely to get entangled in district politics. At PGW, he focused on the business, not on hobnobbing with City Council members or other political operatives.

After leaving consultant's work to lead PGW, Knudsen found himself facing off against Bertocci and other old allies.

"Even on the opposite side of the table, I've always had the greatest respect for Tom," said Sonny Popowsky, the Pennsylvania consumer advocate, whose office represents consumers before utilities and regulatory agencies. "We didn't agree on requests for rate hikes and such, [but] he certainly helped PGW turn around."

The district is counting on him to do the same.

"It's had a substantial reduction of resources and personnel," Knudsen said. "It still has to operate. We need to be sure this organization stays on the tracks."