Today the School District of Philadelphia faces a significant budget challenge, but it is different from the district's budget crises in 2000 and 2006.

In those years, the district spent more than it had. That is not the case this year. This year the district does not have a deficit. The district is not spending more than it has, and does not intend to. In fact, the district ran a modest surplus in each of the past two years, and its budget is balanced this year as well.

The district's annual operating budget spending grew by just 4 percent in the past three years. Spending would have been even lower if not for 17 percent annual growth in charter-school funding.

The district's problem is not spending. It is funding.

State and federal funding for the district is going down next year - for the first time ever, and by an enormous amount - more than $400 million, a 15 percent drop. And this is not due solely or primarily to the district's loss of federal stimulus funds. The district received an average of $113 million in annual stimulus funds in 2010 and in 2011, but it is losing more than $400 million in total funding next year.

With funding going down and spending increases mandated in areas like health benefits, utilities, fuel, pensions, and charter-school payments, the district faces a potential budget gap for the 2011-12 school year of more than $600 million. The district has responded to this unprecedented gap in the most responsible way possible - presenting a balanced budget within the limits of available funding, while also advocating for additional funding so that the most injurious cuts to school programs can be avoided if possible.

The district was prepared for this crisis. It spent months developing a gap-closing plan that is responsible and strategic. But this plan of necessity requires deep spending cuts in order to balance. With 65 percent of the district's budget mandated by law or contract, these cuts have fallen more deeply in the parts of the budget not subject to mandate. And many cuts will be enormously harmful to programs that have enabled the district to achieve a 175 percent improvement in test scores over the past eight years.

That is why City Council decided to provide the district with $53 million, to avoid cuts to school bus service and other important programs. This support is most welcome, but it still leaves a budget gap of more than $550 million.

Proposed state funding cuts are unprecedented and disproportionate. In the past 20 years, Pennsylvania has never before reduced school funding from one year to the next, but Gov. Corbett's budget cuts Philadelphia's state funding next year by over 15 percent. The cuts affect every Pennsylvania school district, but Philadelphia, with 10 percent of the commonwealth's public school students, is targeted to receive more than 25 percent of the total cuts.

The district's plan seeks to avoid cuts to instructional programs to the greatest extent possible. The plan calls for:

Cutting the central administration of the School district in half. But since the district only spends 4 percent of its budget on its central administration, this 50 percent cut will only save $53 million.

Setting a target of achieving $38 million in savings through more efficient purchasing and business processes, an early retirement program, and savings from the initial phase of the district's facilities master plan.

Asking labor unions to work with us to hold down currently-planned growth in next year's wage and benefit costs by $75 million. Deferral of planned 2012 raises and institution of employee contributions to the cost of health benefits can replace the need for more layoffs and deeper cuts in school programs.

Working with SEPTA to preserve the Student TransPass program that more than 45,000 students rely on by closing the gap between when the district pays SEPTA and when the state reimburses the district for part of those costs.

Asking charter-school supporters to help us restore at least $57 million of the $110 million in state charter-school reimbursement that the governor eliminated from the 2011-12 budget. The district is required under state law to increase per student funding for charter schools even as it must cut the budgets of district-operated schools by over 10 percent in order to keep the overall budget balanced. (Next year one in four Philadelphia public school students will be attending charter school, at a cost of $525 million.)

Elected officials and concerned citizens have taken issue with some of the district's proposed cuts, and in response the district has modified its spending plan. That is how the budget process is supposed to work.

But the bottom line is the district is not repeating the mistakes of the past. Spending is under control. Tough decisions are being made. Reasonable people can differ about some of the specifics, but claims that the School District has failed to manage its finances responsibly are baseless and false.

Michael Masch is the Philadelphia School District's chief financial officer.