THE REALITIES are ugly, leaders said Tuesday - the Philadelphia School District is nearly insolvent, lags most other urban districts in academics and loses students to charters because parents believe it doesn't keep their children safe.

"What we do know through lots of history and evidence and practice is that the current structure doesn't work," School Reform Commission Chairman Pedro Ramos said. "It's not fiscally sustainable and it doesn't produce high-quality schools for all kids."

So, at the SRC's direction, Chief Recovery Officer Thomas Knudsen announced a plan that would essentially blow the district up and start with a new structure.

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 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. "If you care about kids and you care about education and you care about the future of this city, that's what we all need to grow up and deal with."

But 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, one that is " totally dismantling the system."

Massive money problems are forcing the SRC's hand. For years, the district spent money it did not have, the current administration now says.

Left unchecked, the district's budget deficit would grow to $1.1 billion by 2017, officials said.

Officials outlined a $2.5 billion 2012-13 budget. To fill a 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 said only that he would "negotiate . . . when our contract expires" - in 2013.

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.

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," she 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.

- Inquirer staff writer Miriam Hill contributed to this report.