Unable to pay its bills, Lutheran Social Service on Thursday announced it was going out of business.
"We're closing the agency, we're liquidating our assets to deal with our debts," said Marc Bloomingdale, acting chief executive officer of the 123-year-old charity.
Bloomingdale said Lutheran Social Service, the state's former adoption contractor, owed its creditors about $2 million.
The group of creditors includes other child welfare programs across the state.
Asked how much his agency's assets are worth, Bloomingdale replied, "I don't know that yet."
Based in Wichita, Lutheran Social Service was named the state's sole adoption contractor in 1996, when Gov. Bill Graves' administration privatized most of the Kansas child welfare system. It lost the contract to Kansas Children's Service League in July 2000.
After losing the contract, Lutheran Social Service offered to pay its creditors 74 cents on the dollar. It warned that if the offer wasn't accepted, it would be forced to file bankruptcy. At the time, the agency was $2.5 million in debt.
State welfare officials declined to offset the subcontractors' losses.
Lutheran Social Service later became a subcontractor for Kansas Children's Service League, caring for about 240 children. But in August, Lutheran Social Service pulled out of the contract because "resources weren't sufficient to meet the costs of needed care," Bloomingdale said. He said agency projections showed it would lose $300,000 a month.
Currently, Lutheran Social Service-sponsored homes care for about 90 children in foster care.
Plans call for transferring each home and each child to other agencies.
"The kids will stay where they are and the foster families will change sponsoring agencies," Bloomingdale said. "There is absolutely no reason to panic Â I want to make that very clear."
Attempts to reach Kansas Children's Service League officials for comment were unsuccessful.
Bloomingdale did not blame Kansas Children's Service League for Lutheran Social Service's troubles.
"For us, we could not make privatization financially feasible Â even if we used every asset we had," he said.
Child welfare advocates have long argued Â and warned Â the rates spelled out in the state's adoption contract did not cover the high costs of caring for older, mentally ill and developmentally disabled children awaiting adoption.
The state Department of Social and Rehabilitation Services pays Kansas Children's Services League more than $900,000 a month, plus about $1,100 for each child in its care.
Roughly 1,600 children are in the state's adoption system.
News of Lutheran Social Service's closing took legislators by surprise.
"I am absolutely shocked," said Rep. Brenda Landwehr, R-Wichita. "This tells us the (privatized) system's still got some major problems."
United Methodist Youthville, the largest of the state's five adoption contractors, filed for bankruptcy last year.
"Something's broken," Landwehr said. "When the state's putting not-for-profits out of business, you know something's wrong."
SRS officials downplayed the significance of Lutheran Social Service's decision.
"The decision by LSS to go out of business does not come as a surprise to SRS, as we have known for the past few years of their financial difficulties," said SRS spokeswoman Stacey Herman. "They are currently not a contractor or subcontractor with the state child welfare system. KCSL made a decision a couple months ago to not have LSS continue as a subcontractor. At that time, KCSL made alternative arrangements to serve the children in the LSS subcontract."