This week the Desert Research Institute along with the other Nevada System of Higher Education (NSHE) institutions provided to the Chancellor an assessment of a potential 8 percent budget reduction for our campus.

            This document was developed by the DRI administration to consider the impacts if we are asked for a budget cut. This is not a plan for budget cuts, but rather background information about the challenges the institute will face if budget cuts are in fact required. Before providing you with details and some context, it is important to note that the Governor has not made any final determinations on his response to an economic downturn, and it is unknown when that will happen.  In this message, I will explain the planning that DRI has undertaken and provide you with the broader economic context of the potential reductions.

            If in fact we are asked to reduce our budget by 8 percent that would be a $1.6 million reduction in DRI's current biennial budget.  This potential reduction would essentially negate the gains the legislature gave us just five months ago.

             In addition, the potential cut would come after DRI has recently completed a major reallocation study, which resulted in major cuts to ensure that we are living within our means. I can state with a clear conscience and without reservation that this organization is very lean, so that the proposed reductions will cut to the bone of DRI.

            Cuts of this magnitude could significantly decrease the competitiveness of DRI by reducing the ability of our faculty to attract research nationally and internationally. However, in developing the current scenario, we have made it a priority to protect our faculty's ability to remain competitive in successfully competing for grants and contracts and being able to maintain DRI's reputation for carrying out the highest level of research.

            The first way that we can accomplish that goal is to replace and reduce some state funding for a variety of operation budgets that include the Office of the Senior Vice President for Finance and Administration, Financial Services, Information Technology and the library. Although it will be difficult, we will make every effort not to reduce the level of service in the process if these reductions are implemented.  In consultation with the System office, we also plan to replace state funding with non-state sources in order to meet our obligations with the Retired Employee Group Insurance Assessment, car bond tort, PERS assessment and property insurance.

            We will also seek other funds for the proposed cuts to the state-supported funding for hourly wages and for non-formula budget equipment with other sources. These changes, however, will limit the flexibility we have enjoyed in hiring extra help and challenge our efforts to keep our technology needs up to date.

            Given the magnitude of these potential cuts, DRI's administration alone cannot shoulder the financial burden, so I am grateful in reporting that each division has offered $100,000 in budget reductions for the second year of the biennium. Lastly, we plan to reduce $364,000 in general fund appropriations in the current fiscal year for the Computational Research and Visualization Building. I will utilize fundraising endeavors to ultimately replace these funds if the proposed 8% reduction is put into effect. 

            While our goal is to minimize the negative impact on our research mission, I am unable to dismiss the fact that any reduction in state support reduces our ability to leverage for outside research funding. As most of you know, DRI leverages nearly every dollar it receives from the Nevada general fund into more than $4 for research, and in many cases, the ratio is even higher. For example, during the past four years, about $2.8 million in Applied Research Initiative funding has been used to directly attract just more than $20.8 million in external money. I know that all of you join me in being proud of what DRI's has been able to accomplish over the past several years.

            Since 1999, DRI has leveraged $60 million of state operations, capital and maintenance support into more than $227 million in research funding through 2006.

Given this return on State investment, a reduction of $1.6 million to DRI could potentially result in a loss of $6.4 million in long-term return that benefits Nevada's economy.

            While DRI's budget comprises just 1.1 percent of the state appropriation to NSHE, we are affected by the reality of the current economic and fiscal conditions in Nevada. Our Chancellor's office estimated that NSHE entered the 2007 session with a budget deficit of somewhere between $56 million and $70 million due largely to the three largest institutions in the system not meeting enrollment projections. The funding formula for NSHE was raised 1 percent to 85.5 percent, which generated about $15 million. Hold harmless funding of $18 million also helped to defray the existing deficit. However, about $11 million was lost during the session, when the Governor asked that his budget request be pared back due to revised economic forecasts. At DRI this meant that our request for additional administrative funding was reduced and the statewide water study funding was eliminated. UNLV was hardest hit and implemented an across-the-board 3 percent cut in each year of the 2008-2009 biennium. UNR and CSN faced smaller but serious deficits heading into the current biennium.

            According to the state budget office, an 8 percent reduction would result in $102.5 million being cut out of the $1.3 billion general fund appropriation for NSHE. The only agency hit harder than NSHE would be the state department of Health and Human Services, which is facing a $140 million cut at 8 percent. This is also drastic considering that state welfare programs are virtually all dependant on state funding to leverage federal dollars.

            Driving the budget cut discussion is declining tax revenues. The latest Department of Taxation report issued on November 29 reported that sales tax revenue fell $24 million below projections in the first quarter of the fiscal year. This has led state budget director Andrew Clinger to project a shortfall of upwards of $300 million. The most recent Gaming Control Board report in November was $3 million less than projected.

            Our Chancellor, the Regents, and many members of the legislature are working on NSHE's behalf with the Governor. It should be noted that $267 million are currently tucked away in the Rainy Day fund and another $36 million is scheduled to be deposited there this fiscal year. The Chancellor is advocating that one shot appropriations and capital spending that totals $390 million should be examined carefully before a budget cut is implemented. He is also seeking an Attorney General's opinion on whether there can be any reduction in the Cost of Living Allocation.

            I hope this helps in answering some of questions you may have about the budget challenges DRI is facing along with every other institution of NSHE and many state agencies. I appreciate your hard work, dedication and understanding of our current circumstances. If you have any concerns or would like to share any thoughts, my door is always open.