City Controller Alan Butkovitz on Wednesday called for increased state oversight of the Philadelphia School District following revelations that it faces a deficit of more than $400 million next year.

Butkovitz said in an interview that the state should make the district responsible to the Pennsylvania Intergovernmental Cooperation Authority (PICA), the agency that has effectively supervised the City of Philadelphia's finances after helping to pull the city from the brink of bankruptcy in 1990.

Under PICA's eye, the district would have to submit a five-year financial plan for approval, as the city does. That prevents one-time solutions to fiscal problems and makes the city match its costs and revenues over the long term.

On Tuesday, The Inquirer reported that the School District is bracing for a budget shortfall of at least $430 million in its $3.2 billion budget, with worst-case scenarios climbing to more than $530 million. That hole includes the void created by the end of a two-year stimulus fund, worth $234 million this year, that the district used for operations. District Superintendent Arlene Ackerman said any numbers beyond the $234 million shortfall were speculative.

The School Reform Commission is the state-appointed board that runs city schools, but Butkovitz said the SRC is too involved in the day-to-day operating decisions to provide the necessary fiscal oversight.

"The whole point of this is, you can't be a check on yourself," Butkovitz said.

James Eisenhower, chairman of the PICA board until January, when he is expected to be replaced by someone appointed by Gov.-elect Tom Corbett, said PICA was equipped to do the job if directed to do so by the legislature. "There's no question that the discipline that the five-year plan imposes on the city has been a very good thing," Eisenhower said.

Mayor Nutter, through a spokesman, endorsed the practice of multiyear planning, but questioned the wisdom of having a state agency overseeing another state agency, and would leave the decision on fiscal planning to the SRC. "It demands real fiscal discipline and it helps spotlight emerging problems, and it helps prevent onetime solutions that don't address long-term fiscal challenges," Nutter spokesman Mark McDonald said.

The School District rejected the concept of PICA oversight, arguing that the SRC and Ackerman have returned the district to financial stability with budget surpluses over the last two years. "There is no question that the School District will face significant budget challenges next year," spokeswoman Shana Kemp wrote in an e-mail. "The School District is ready to cooperate with state officials in whatever way they deem appropriate to ensure that the district continues to raise student achievement levels while maintaining fiscal responsibility."

State Rep. Dwight Evans of Philadelphia was a champion of education funding for his two decades as ranking Democrat on the House Appropriations Committee - a post he recently lost. He said the district must deal with three powerful forces it can't control: the fiscal climate in Washington, the financial challenges in Harrisburg, and the political shift that accompanies a new Republican governor from western Pennsylvania and legislative leadership changes that have shifted power to the western part of the state.

He has heard Corbett identify New Jersey's budget-slashing Gov. Christie as a role model, and pledged to balance the budget without raising taxes.

"That's what he said, and I will take him at his word," said Evans, who added thathe thought the SRC did not need PICA oversight and could adopt five-year planning on its own.

With the statewide loss of federal stimulus funds next year, state officials are bracing for a budget gap of $4 billion or more. Of the School District's $3.2 billion budget in 2010-11, $1.68 billion came from the state. Gov. Rendell has predicted that Corbett will have to drastically reduce education spending if he keeps his promises.

Corbett spokesman Kevin Harley said Wednesday, "Gov.-elect Corbett will be looking at the entire state budget for cost savings."

The district should not expect to find great sympathy in the Republican-dominated legislature.

"We warned school districts during the 2010-11 budget process that they should not use the federal stimulus funds to cover recurring costs," said Erik Arneson, spokesman for Senate Majority Leader Dominic Pileggi (R., Chester). "Unfortunately, it appears the Philadelphia School District did not take that advice to heart."

School District officials have discussed with the Nutter administration the possibility of raising the district's share of property tax revenues by $54 million without raising taxes, according to a source familiar with the discussions. School advocates pushed for such an increase for the last two years.

"We will have a lot of difficult choices to make for the fiscal tear '12 budget, as we anticipate cuts from the state and federal governments," said City Councilman W. Wilson Goode Jr., "and one of those difficult choices will be what to do with the School District." But, Goode said, "City Council shares that passion for education as a policy priority," and reallocating money to the School District is a less daunting task than raising first sales taxes and then property taxes, as Council did over the last two budgets.

"We're going to have to take a hard look at our commitment to public education," said Councilman Curtis Jones Jr., whose district in West Philadelphia, Manayunk, and Roxborough includes some of the poorest performing schools in the state. "You don't have to look hard for my vote."

Contact staff writer Jeff Shields at 215-854-4565 or jshields@phillynews.com.