Hawai'i's nonprofit organizations employ more workers than the state's construction industry, making it the state's fifth largest nonagricultural employer, according to a new study.

The state's nonprofit organizations generated about $4 billion in revenue in 2005, or roughly 8 percent of the state's $50 billion economy, according to the studay.

The Hawaii Community Foundation and SMS Research, which released the study yesterday, said the number of people employed by Hawai'i tax-exempt organizations grew 21 percent from about 40,000 in 1997 to 48,500 in 2002, the latest year for which employment figures were available. Construction employs about 32,000.

At the same time, local nonprofits paid about $1.45 billion a year in salaries, which is about 7 percent of all the wages paid in Hawai'i, the study said.

"The message is that the nonprofit sector continues to be very vibrant," said Kelvin Taketa, president and chief executive officer of the Hawaii Community Foundation. "It's a huge part of the economy, and it continues to grow in good times and bad."

The nonprofit Hawai'i Community Foundation, which oversees over 400 endowments and scholarship funds statewide, conducted the six-month study with SMS Research to raise awareness of the role nonprofits play in the state's economy. This year's study is a follow-up to a 2001 report, which found that the state's 2,000 largest tax-exempt organizations received more than $2 billion a year in annual revenues.

Most of the revenue increase in the past four years was because of higher federal and state government contract awards and higher program service fees largely to nonprofits in the health and human services sector.

About half of the revenues were raised by the state's largest nonprofits such as Kamehameha Schools, Hawai'i Pacific University and the local hospitals.

The study also cited a number of structural challenges faced by Hawai'i's nonprofits.

For instance, foundation giving only accounted for about $71.6 million of the $4 billion in revenues received by Hawai'i's nonprofits. Of the $71.6 million, the Hawaii Community Foundation contributed about 27 percent, or $20 million.

Staff recruitment is a major challenge that tax-exempt organizations face today, the study said. With unemployment rates dipping below 3 percent, nonprofits are struggling to keep their positions filled and meet the demand for their services.

Deena Dray, managing director of the nonprofit Diamond Head Theatre, said the recent worker shortage forced her to hire a technical director from the Mainland.

Given the uniqueness of the job requirements, the theater, which employs about 13 and has an annual budget of $1.6 million, couldn't fill the position locally and had to pay the person's moving expenses on top of a salary premium, said Dray.

"This was the second time we had to move someone in this position here. The previous person and his family could not make it on the salary that Diamond Head Theatre was paying and had to move back to the Mainland," Dray said.

Nanci Kreidman, executive director of the nonprofit Domestic Violence Clearinghouse and Legal Hotline, said her organization has difficulty recruiting new employees and struggles to keep them.

Kreidman said most attorneys are paid $15,000 a year more than what her organization can offer, forcing the clearinghouse to hire younger, less experienced lawyers to represent victims of domestic violence.

She said the clearinghouse, which employs about 50 people and has an annual budget of $3 million, often loses those attorneys to higher paying jobs once they get a couple years of experience.

Kreidman added that she recently had to go to the state Legislature to increase the salaries the organization could pay staffers for work they do on government contracts. Government contracts and grants often limit the amounts that could be used for salaries.

"We can't recruit attorneys and talented staff without compensating them better, but our contract with government specifies exact same payments to the penny year after year," Kreidman said.

Reach Rick Daysog at rdaysog@honoluluadvertiser.com.