The bad news, which everyone's heard by now, is that the nonprofits in Hawai'i have been dealt a terrible blow by the economy.

The good news: They haven't given up. Some of them already serve as examples for how a survival strategy may help these critical agencies weather the storm.

Nonprofits shoulder a great deal of the social service function of government. As Advertiser Staff writer Mary Vorsino reported last week, an increasing share of the state's key duties have been outsourced to nonprofits in recent years, which makes the drop in funding grants keenly felt.

It's difficult to quantify how much nonprofits have lost — in some cases, agencies are funded through reimbursements for government referrals, and they don't know yet how much referrals may decline.

Several key agencies already have laid off staff and reduced operations. And this surely will have a trickle-down effect through the economy: The most recent figures show that the nonprofit sector employs about 40,000 here.

The core concern, however, is the loss in services coming at a time when the need for those services is sure to spike.

The federal stimulus package has yielded some relief, and more competitive grants are expected in the coming months. But the American Recovery and Reinvestment Act is not a panacea. It is at best a temporary injection of cash that can't replace all the lost local funds. And most of it is targeted for specific uses, rather than being an all-purpose cache of money that any nonprofit might tap.

What's needed is a survival plan for these organizations, a way to do more with less by forging new partnerships and exploring financing opportunities that might not have been considered previously.

One example: Goodwill Industries and Lanakila Pacific, both agencies that address job-training needs, have paired up on a contract enabled by a federal work-readiness program for the disabled and now are handling property management and grounds maintenance for the Army's more than 6,000 barracks units for single soldiers.

It's a new funding stream enabled by a partnership.

Also, these are nonprofits that have established entrepreneurial revenue sources. Goodwill has its stores; Lanakila has a catering business and other projects, the profits from which help to support its lauded "Meals on Wheels" program, another victim of budget shortfalls.

Additionally, some smaller nonprofits that may serve specific communities should follow the example of the Wai'anae Business Center, which partnered with other nonprofits in other areas and have applied for a grant to provide entrepreneurial business training on an islandwide basis.

Coalitions of nonprofits need to brainstorm ways that they can pool resources and share overhead expenses. Some of this is already happening, and — just as importantly — funding agencies are starting to do their part to encourage it.

For example, Hawaii Community Foundation, which funnels resources from various funders to nonprofits, has begun performing this matchmaking function, said Chris van Bergeijk, vice president of programs.

"We are encouraged by the new and innovative ways that some nonprofits are pursuing shared administrative costs and even looking at merging and consolidating their organizations," she said. "The foundation has dedicated funds to provide grants to nonprofits that need help with formalizing new operating agreements or mergers."

This approach can be amplified by other funding agencies, which could make such cooperative arrangements by making it a criterion of the request for proposals.

It's important that both the funders and the nonprofits enable the survival of organizations that have a strong local basis and a record of serving their communities well. Those connections are important to make the most of limited funds for social services for the immediate future.

And this state, like any other, will need a robust network in place for the delivery of social services once the economy improves. For all the strain it's posing now, the economic recession may yield something important by compelling the reorganization of the nonprofit sector into a force that does its critical work more efficiently and effectively.