On the brink of financial ruin and not improving nearly fast enough academically, the Philadelphia School District will, over the next 16 months, completely reinvent the way it organizes and runs schools.

And with the announcement of its radical restructuring last week, questions swirl.

Is the district privatizing public education?

Who will run the new "achievement networks," groups of 25 or so schools to be managed by either outside providers or district staff, bound by performance contracts with the School Reform Commission, and expected to be entrepreneurial?

How will the 40 schools to be closed in 2013 be chosen?

Can this experiment work?

Thomas Knudsen, the turnaround specialist brought in by the SRC to lead the district through this period of massive upheaval, said the district of 249 schools and 146,000 students cannot continue in its current form.

"There's the perfect storm here - it was the finances combined with the abysmal performance in the schools combined with a political framework here that was just unacceptable," Knudsen said in a recent interview.

Academically, the district is near the bottom of the pack of large urban school systems, even though it has improved over the last decade. Financially, it's a mess, with a history of heavy borrowing to make ends meet - the district now spends 10 cents of every dollar for debt service.

It's facing a $218 million deficit for the 2012-13 school year - and that number may grow. The 2013 gap will be financed largely through borrowing, as leaders say they cannot further cut already-stretched school budgets.

But they are counting on big givebacks from the unions, including a gigantic $156 million savings in wages and benefits.

And they're also planning on moving quickly to shut a quarter of the district's 249 schools - 40 would close in 2013 and 24 more by 2017.

Set against that backdrop is the district's blueprint for massive transformation.

Decentralization is the byword of the plan, which is subject to public comment and SRC approval before adoption. The district's central office, already half the size it was last year, will shrink further, to only about 200 staff members.

The current top-down structure will go away, with the new achievement networks taking on the responsibility for schools.

Schools could be grouped geographically, or by interest - arts schools, for instance, or career and technical schools. Providers would compete to run them. Each would have no more than 18 employees. They would have contracts with the School Reform Commission and could be replaced if they did not meet performance goals.

And unlike the district's privatization push of the early 2000s, when officials gave more than 40 schools to private providers - they ultimately ended that initiative, saying it was a flawed model - only nonprofits will be involved in running schools, Knudsen said.

"We don't want any for-profit groups in here," he said. "The outsiders would be people like The New Teacher Project, or universities such as Temple, Drexel, or Penn."

Knudsen said organizations like New Visions for Public Schools, a New York-based company that manages schools there, would be good partners.

In-house talent is welcome, too, Knudsen said - people who are now principals or assistant superintendents, for example. They would have to leave their employment with the district to take on the new role, though.

Knudsen is also looking to former district employees, many of whom fled in the last few years.

"A lot of people left here, who had lots and lots of years to go, because," he said, "they couldn't stand the politics."

Make no mistake, Knudsen said, this is not an abandonment of public education, as many critics have suggested, including teachers' union president Jerry Jordan and prominent national education historian and expert Diane Ravitch.

"We want to be very clear: This is not privatization," said Knudsen. Achievement-network managers "would not own these schools. These are still district schools."

A chief criticism of the district's "diverse-provider" model of the early 2000s was that, while companies were expected to run the school, they lacked real control over employees and key decisions.

That will not be repeated, Knudsen said. While principals and teachers will remain employees of the district and members of their respective unions, principals would be responsible for hiring and firing teachers, and achievement networks would do the same for principals.

"They will have real authority," Knudsen said. "How else can they be held accountable if they can't discipline or actually remove people for poor performance? It will be a matter of collective bargaining, and it may end up being in collaboration with the lean central office. But we want them to have that authority and power."

Who wants to manage a network of district schools?

A spokesman for New Visions for Public Education said the enterprise worked only in New York and had no plans to come to Philadelphia.

Overall, Knudsen said, "we have not talked with any of these groups, although the indication is that there is some interest brewing. We haven't made contact yet."

Mastery Charter Schools, the local charter operator with a growing national reputation and Philadelphia portfolio, has been a key district partner on the Renaissance initiative, where the lowest-performing district schools are turned into charters.

Speculation has already begun that Mastery might step up to run an achievement network. But Courtney Collins-Shapiro, Mastery's deputy chief innovation officer, said it was taking a wait-and-see approach.

"They put a whole lot of really big things on the table, which leaves a whole lot of room for filling in the gaps," said Collins-Shapiro. "Until they do that, it's hard for us to say."

A KIPP Philadelphia official said that charter manager had no position on the district's plan and would wait for more details before weighing in.

And a spokesman for Universal Cos. Inc., which runs four former district schools as charters, said, "At this time, Universal's primary focuses are to educate its current students and manage their schools."

A smaller local charter operator, String Theory Schools, was just tapped to run a Renaissance school, and it might be game, officials said.

"Change is good, and although this is a huge undertaking, String Theory Schools looks forward to being an integral part of the future of the new Philadelphia public-school system," CEO Angela Corosanite said in a statement.

Mary D'Anella, a spokeswoman for String Theory, said the organization liked the idea of achievement networks.

"Each network could provide more support, not just more power to the school, but better individualized attention to whatever community the school is in," D'Anella said. "The model is not top-heavy, so it can provide more support for teachers and students."

Chris Lehmann, principal of Science Leadership Academy, a district magnet school that has generated national buzz for its innovative practices and promising outcomes, is particularly interested in the possibilities of field-based leadership that formalizes the best-practice sharing that principals do every day.

"If we are at a moment in time where our mission can be expanded and that there are other schools interested working in a similar mission," Lehmann said, "then I think the entire SLA community is in favor of being in service."

David Hardy, CEO of Boys' Latin of Philadelphia Charter School, would be interested.

"Absolutely," said Hardy. "I'd like to do something in West Philadelphia. We have three really good universities out here. We might be able to find a partner."

Hardy hopes the networks are kept small - 25 schools seems too many to him.

"Somebody needs to be able to know what all these kids are doing," he said, "to keep track on whether they're making progress."

Hardy, who concedes that he "isn't shy about criticizing the district," is excited by the plan.

"Sometimes, circumstances make people do the right thing, and I think we're all under some pretty extraordinary circumstances right now," he said. "I don't think we have a choice in this."

Contact Kristen A. Graham
at 215-854-5146 or kgraham@phillynews.com, or follow on Twitter @newskag. Read her blog, "Philly School Files," at www.philly.com/ schoolfiles.