An economic downturn is looming large over Hawai'i nonprofits, whose three major sources of funding — public donations, government appropriations and grants from foundations — are all expected to shrink this year even as the number of people who need help is predicted to grow.

Several nonprofits have already started eyeing cutbacks or hiring freezes.

Last month, Aloha United Way laid off four people and reduced the hours to its "211" telephone service, where people can call to link up with other nonprofits, citing a declining economy and a drop in donations.

The Institute for Human Services, which runs two emergency shelters in Honolulu and offers other services to the homeless, plans to eliminate at least five vacant positions by training people to do more than one job.

And Helping Hands Hawai'i, which operates the Community Clearinghouse, is looking to make cutbacks wherever it can without reducing its services to needy families, executive director Brian Schatz said last week.

"We're really bracing ourselves," he said.

Nonprofit leaders say recent news about big layoffs at Aloha Airlines, Molokai Ranch and elsewhere will only serve to tighten giving as people worry more about the future and their economic well-being.

"Hawai'i is still pretty much in denial. But it's become more and more difficult to deny there's a change" in the economy, said Hawai'i Alliance of Nonprofit Organizations President and CEO John Flanagan this week. "There has to be some forward thinking."

The talk of recession — and dwindling donations — comes on the heels of what many nonprofits considered several good years. That means some nonprofits have something of a buffer before they expect to start feeling the effects of a downturn.

But that cushion won't last long, warn local and national nonprofit leaders, who are pushing charities to act now to make sure services don't fall in the midst of economic crisis — when people need help the most.

Diana Aviv, president and CEO of Independent Sector, a Washington, D.C.-based coalition of more than 600 nonprofits from around the country, said charities are expected to provide more help during hard times and yet must do so with less money. But if the economy continues to falter, and if charities don't get more help, some needy people "will end up going without," she said.

She added nonprofits across the nation are already scaling down, even laying off.

"We're expecting that organizations are going to have difficulties in 2008, and much greater difficulties in 2009," since much of the donations garnered this year are to be used next, she said.

BETTER THAN MAINLAND

For now, charities in the Islands are better off than some of their counterparts on the Mainland, where the sub-prime mortgage collapse has taken a bigger bite out of people's wallets. Still, some local nonprofits are already preparing for a drop in donations, grants and government aid.

On Wednesday, about 20 leaders from IHS, Community Links Hawai'i and other nonprofit groups met with Flanagan to talk about how to prepare their organizations for the economic downturn. The meeting had an optimistic tone, with leaders saying Isle residents are just about the most generous anywhere.

But several also said that many Hawai'i families will be hard-pressed to give this year.

Suggestions made during the meeting on how to face the looming recession varied, from starting donation drives earlier to making sure people understand where their money will go. The ideas will be shared at the Hawai'i Association of Nonprofit Organizations convention next month and a national convention this summer. Flanagan said the economy is likely to be topic No. 1 at both gatherings.

"It's time for nonprofits to step up ... to make the most of scarcer resources," Flanagan said.

There are about 5,000 charities in the Islands, nearly 1,800 of which reported annual operating budgets of $25,000 or more in 2006, according to the National Center for Charitable Statistics. In total, Flanagan said, the organizations represent about 8 percent of the state economy, generate about $4 billion a year and employ more than 50,000 people.

Some nonprofits are facing the tough times in the midst of massive capital campaigns started when cash was freer flowing. Catholic Charities Hawai'i, for example, is about halfway through a $28 million campaign to renovate its future headquarters in Makiki.

The headquarters, at the site of the former First Presbyterian Church on Ke'eaumoku Street, will create a one-stop shop for a range of services and consolidate five offices sprinkled across urban Honolulu. The headquarters is set to open in October 2009, following a renovation that will convert the sanctuary at the church into a program center.

The exterior look of the sanctuary, something of a landmark in Makiki, will remain.

So far, the nonprofit has raised or been promised $11.6 million as part of the capital campaign that started in 2006. Officials want to reach the $20 million mark by December. But that plan could be pushed back if drumming up donations gets harder.

"It's natural that when you have a slowdown ... people will do a reassessment of all their spending patterns, including giving," said Larry Rodriguez, chairman of the campaign committee.

He said Catholic Charities does have an advantage because its capital campaign runs through 2010, which means if giving falls short one year, donations could be made up in later years.

HOPE FOR GENEROSITY

Jerry Rauckhorst, president and CEO of Catholic Charities Hawai'i, which serves people "without regard to faith or culture," is optimistic, saying that when times get tougher in the Islands, people get more generous.

That's what happened after the September 2001 terrorist attacks, when charities needed help meeting the increased needs of laid-off service industry workers. According to a Hawai'i Community Foundation study released in 2002, about 19 percent of residents said they gave more after the attacks to meet the need, and about 76 percent said the tough times did not affect their giving. The study concluded there is a "resiliency" in giving in the Islands.

But it's difficult to say whether that will hold true in the current economy.

Nonprofits get their funding from different sources, and some depend more heavily on individual and corporate giving than others.

Susan Doyle, executive director of Aloha United Way, said most nonprofits count on their annual donation drives for much of their funding. Those drives are held throughout the year, but pick up considerably in October, when nonprofits attempt to appeal to people when they're in the holiday spirit and giving mood.

Aloha United Way has about 65,000 donors, most of whom give less than $100 each.

The organization divvies up most its proceeds to 52 major organizations. Last year, donations fell to $12 million, down from $13 million in 2006. Aloha United Way raised $13.1 million in 2005. And this year, Doyle is bracing herself for another tough donation drive — and she said she's not the only one.

"The nonprofits are very aware of what's being said about the economy," Doyle said. "The forecast is not positive."

CONSIDERING CUTBACKS

Schatz, of Helping Hands Hawai'i, said he has been considering — with the help of his financial officer — what he could cut at his organization without affecting services. He's still searching, and said he hasn't had to make cuts in programs that help needy families — yet.

"We're looking for areas to cut that aren't in the provision of services," he said.

He said the organization is preparing for a drop in giving among individuals, and is also preparing to see less money from foundations, which often invest their money and give according to their returns in the stock market. If the market is down, donations are too.

Meanwhile, lawmakers are already clamoring about a tight budget.

And some are warning nonprofits to be ready.

State Sen. Rosalyn Baker, chairwoman of the Ways and Means Committee, said the number of state grants for capital improvement projects and operating expenses at nonprofits is expected to drop significantly this year. State grants for operating funds likely will fall by 10 percent to $13.5 million this year, Baker said.

As for capital improvement projects, she projects grants to total $10 million, half of last year's amount.

"We're just not going to be funding very many this year," she said. "We have shrinking resources and we're trying to take a balanced approach. We've got to be much more prudent."