The River Oak Center for Children will close its 42-year-old residential care facility for children with serious emotional and psychiatric problems, the organization's president said Friday.

The decision comes despite a successful $7 million fundraising campaign to renovate the aging campus in Foothill Farms.

Already, 85 percent of the money has been raised. Two new dormitories filled with enough beds for 36 elementary school-age children have been built; a gymnasium and administrative office are under construction.

"It's just heartbreaking," said Mary Hargrave, River Oak's president and chief executive officer, who has worked there 26 years. She said the nonprofit agency has lost money on the residential care facility for years. This past year, those losses jumped to $1 million. River Oak – which has a $17 million annual budget and runs several other programs for 2,000 vulnerable children – simply couldn't afford to continue to shoulder the cost.

Across the state, other live-in programs for emotionally disturbed children are finding themselves in similar predicaments. In 2006, the Stanford Home for Children, headquartered in North Highlands, closed all four of its group homes for troubled teenagers.

The Sacramento Children's Home and Davis-based Families First say they intend to continue providing residential care to children with serious emotional and behavioral issues who cannot be safely placed with families. But those organizations say their residential programs also are on increasingly shaky footing.

Leaders of those agencies, and Laura Coulthard, Sacramento County's director of Child Protective Services, offer two main explanations for the trend:

In recent years, a shift in philosophy has led counties and nonprofit agencies to place emotionally disturbed youngsters with relatives or foster families whenever possible. They say a family setting, bolstered by therapy and support, is often healthier for a child than a residential facility.

That has led to a decrease in the number of children being referred to residential care homes. Only 20 children live at the River Oak home, slightly more than half its current capacity. At one point, 80 children lived there. Most nonprofits and county officials consider the trend toward family placements positive.

But they say having fewer young residents, combined with years of underfunding by the state, is making it difficult for them to keep the facilities open for those children who still do need them and who might have too many issues to be safely placed with family members.

Carroll Schroeder, executive director of the California Alliance of Child and Family Services, says the state pays about 80 percent of what's needed to run a quality residential care facility. With the governor's proposed budget cut, he said that would drop to 70 percent.

"If that happens, you will see multiple closings," he said.

Among them could be the 50-bed facility run by the Sacramento Children's Home, on Sutterville Road.

Michael Petersen, director of 24-hour programs for the agency, said its board recently voted to continue supporting the residential care facility, calling it an integral part of the organization's history and mission.

But further cuts, he said, "would pretty much make it next to impossible for us to continue. … We're already holding on, but that would be really, really a crisis for us."

If the trend continues, some worry that certain children might have to be sent to residential programs in other parts of California – or even to other states.

Laura Heintz, executive director of residential services for Families First, said she's concerned that, if closures continue, "there is a population that won't be able to be served in a safe way."

In the absence of appropriate care, she said, such children might end up in juvenile detention centers, hurting someone else or being hurt themselves.

On Friday, staff members at the River Oak school on Eastern Avenue – which is slated for closure along with the residential facility – said they had informed parents and children of plans. Some students expressed sadness, said Neita Perryman, a clinical social worker. Others were looking forward to studying in a more mainstream environment.

The staff members, too, had mixed emotions.

"There's a small sense of pride that we've worked ourselves out of a job," said Heather McNally, the school's clinical program manager.

A few children will be sent to other intensive residential programs, one in San Francisco, another in Southern California. Many will be placed with relatives or foster families.

Hargrave said construction on the River Oak residential campus will continue; the organization will use the renovated facility for a different program.

Some 60 employees were given notice last week. To provide the children with as much continuity as possible, the residential treatment facility and school will remain open until June.