Two recent stories about the struggles of nonprofit groups expose the weakness in Rhode Island’s economy and the importance of keeping and attracting corporate headquarters and rich residents here, even if it requires tax breaks.

It may not be politically popular to support tax incentives for companies and high-income individuals at a time when children are being cut from state health insurance rolls. But the only long-term way for Rhode Island to support the services it wants to deliver is by creating an economy that creates jobs and wealth. A targeted tax policy can do that.

Consider the challenges facing nonprofits, the agencies that provide a safety net for people with financial hardships and activities that improve Rhode Island’s quality of life.

One story reported the merger of Greater Elmwood Neighborhood Services and the Elmwood Foundation, both in Providence. The directors of both agencies say a merger will cut overhead costs and help them to attract scarce financing in a sagging economy to pay for affordable-housing programs rather than fighting over contributions.

The other was about the Veterans Memorial Auditorium, and the advocates of the arts who are pushing to move its control from a nonprofit foundation to the Rhode Island Convention Center Authority, a state agency. They don’t think a nonprofit can raise enough money these days to fill the hall with performers, make repairs to the aging building and break even. For years, the VMA, home to the ballet and symphony, has run a deficit.

Both reports underscore that while the number of nonprofits continues to grow in Rhode Island, the constraints are hampering their ability to raise enough money to pay for the help they provide.

The struggle is on several fronts.

The slowdown in the economy, plus rising food and energy costs, are leaving people with less money to donate.

“If it comes down to filling the tank or making a donation, the car wins,” said Anthony Maione, president and chief executive officer of United Way of Rhode Island.

Also, the pool of corporate donors is shrinking as more mergers and acquisitions take place, pushing locally controlled companies, their headquarters and top executives out of state. For example, Maione said the acquisition by Rite Aid, based in Pennsylvania, of Brooks, the drugstore chain that was run from Warwick, could throw his fundraising goals off track this year.

Then there’s Rhode Island’s business and tax climate, considered among the most burdensome in the country. It is driving wealthier Rhode Islanders, especially retirees, to tax havens, such as Florida and New Hampshire, with no income tax and laws that allow them to keep more of what they earn. That leaves fewer people here to tap for donations.

On top of all that, state and federal budget cuts have already reduced money for nonprofits. It will get worse as Rhode Island lawmakers try to find money to cover massive budget deficits. More cuts are coming just as the demand spikes for services for people caught in the slumping economy.

“Right now, it’s probably the worst I’ve ever seen,” said Linda Impagliazzo, who runs the Blackstone Valley Advocacy Center, in Pawtucket, which provides domestic-violence services, including an emergency shelter, support groups, transitional housing and legal advice.

She said cutbacks in state and federal grants have already reduced her budget from $826,000 last year to $780,000 this year. She has reassigned responsibilities for her staff of 22 and is not filling some vacancies. She’s also bracing for more cutbacks.

Maione, at United Way, has been watching the squeeze on nonprofits and thinks it’s time for mergers among some of the 1,700 nonprofits in Rhode island that offer duplicate services and seek support from the same donors. Last year, he launched a $100,000 merger and consolidation fund to help pay for professional services for nonprofits looking to combine operations to more efficiently serve their clients and raise money.

Some of the fund paid for the preparation of the merger of Greater Elmwood Neighborhood Services and the Elmwood Foundation.

“Over the years we became more and more similar and we actually found ourselves having to compete for resources,” said Cynthia Langlykke, director of Greater Elmwood.

Another chunk of money is helping to pay for the consolidation of back office and computer services used by six independent agencies that operate under the umbrella of the Rhode Island Coalition Against Domestic Violence.

Maione is launching a second $100,000 fund on March 11.

But as the financial crunch deepens, consolidation will not be enough.

A statewide debate is under way over what to cut or change to solve a state budget deficit of $150 million this year and $450 million next year, and what role the nonprofits will play in providing services that the state can no longer afford. There is a call from advocates of the poor and needy to eliminate the tax breaks for companies and rich individuals, in order to collect more tax revenues to pay for services.

I agree there is a need for a comprehensive, independent review of all the tax incentives that have been approved over the years to determine what’s working to create jobs and expand the economy and what isn’t.

But it’s shortsighted to freeze, roll back or eliminate recent changes in the income tax and capital gains taxes that were designed to encourage people with high net worths, including corporate executives and retirees, to stay or relocate to Rhode Island. They are the job creators and the people with money to invest here in Rhode Island. Eliminating targeted tax reductions that keep them here will undermine the cause of the nonprofits, and cost them donations.

Consider the evidence.

The average charitable contribution in Rhode Island in 2005, as reported to the Internal Revenue Service, was $2,954.

But among taxpayers with annual incomes of $200,000 or higher, the average contribution was $12,543. And one-third of all charitable giving in Rhode Island in 2005 came from people with income above $200,000, though they make up only 2.5 percent of the population.

The cold hard facts of the system we live under is that wealthy retirees or executives can move their households and companies anywhere they want these days. They can easily pick up stakes and relocate to where the tax burden is less.

If that happens, there will be less money to support local and state government, less money for the arts, and less money to support all the good work done by the nonprofits.

It will not create the Rhode Island where we want to live.

jkostrze@projo.com