The District's only residential program for emotionally disturbed foster children has announced that it will close in January because of a lack of money.

The Devereux Children's Center, located in a building known as the Hurt Home in the 3000 block of R Street NW, notified its clients and their attorneys in a letter that the center will close Jan. 31 because "it has become clear that there is insufficient funding to permit Devereux to continue to operate this program at the level of service and quality."

Devereux has a $4.1 million contract with the District to offer educational and residential mental health services for 24 children annually, according to the D.C. Department of Mental Health.

A department official said that two other providers have expressed interest in taking over the contract. Attorneys who represent foster children being treated at the center voiced concern, however, that the quality of service would suffer given that the new provider will receive less money than Devereux did.

Shauna Spencer, director of the department's Child and Youth Services Division, said the agency determined that another provider could offer the same level of services at a more cost-effective rate. The new contract would be for a total of $3.3 million.

The rate for residential services, which are covered by Medicaid, will remain $250 a day per child. But the daily rate for education will be $130 a day per child instead of the current $196.84. In addition, the city no longer will pay a so-called "empty-bed" rate if there are fewer than 24 children in the program or any children who are not covered by Medicaid. The agency paid $160,000 in fiscal 2005 under that provision.

"The department was unable and unwilling to continue to do that," Spencer said.

Devereux's contract ended Sept. 30, and the Mental Health Department extended it temporarily but did not renew it. Spencer said Devereux decided not to compete for the new contract, but two District-based groups, whom she declined to name, are interested. "Devereux has essentially made a business decision, and businesses make these decisions," Spencer said.

Devereux program director James Lester, who signed the Nov. 7 letter announcing the center's closing, referred questions to executive director Marco Bolivar, who did not return a telephone message seeking comment.

The Devereux Foundation is a Pennsylvania-based nonprofit organization that operates mental health programs in 11 states and the District. Its operation at the Hurt Home in Georgetown serves foster children younger than 12. The children sleep, attend classes and have meals at the center, and they receive treatment from on-site psychiatric staff members. The average length of stay is 12 to 18 months.

The District has struggled for years with how to best use public money to serve the city's most vulnerable children. Both the city's mental health and foster care agencies were once placed under court control and remain under a court monitor.

Anne E. Schneiders, a District attorney who represents foster children at Devereux, said she was concerned that a new provider would not have enough funding to provide high-quality services. She said she was told by Devereux officials that they ran into financial trouble because their Medicaid rate has been frozen for the past three years.

"What are we losing? Is it just a question of containing these children behind closed doors, or are we really looking for a quality therapeutic program?" Schneiders asked. "We have a good program in D.C. It's pure and simple money."

Council member Adrian M. Fenty (D Ward-4), who chairs the council's human services committee, has asked the Mental Health Department to submit a transition plan.

"We need to see in writing that if Devereux closes, where the kids will go," Fenty said.

Spencer said the department's long-term goal is to expand community-based mental health services so that children do not need to live away from home to get help. As that happens, Spencer said, "the need to place children in residential treatment centers diminishes and ultimately goes away."