I have been working at a scheduled 42.5 to 45 hours per two week pay period for over one year. When my boss and I asked our board of directors for a raise, they gave us a 25 cent raise, but cut our hours to only 35 hours per pay period, which reduces our income over $200 per month. We have been told that this is a final decision, so if we don't accept the cut, then we are no longer employed. We are really upset since we will be making even less than the employees who worked before us (and had worked for the company the same amount of time.) Can our board of directors legally do this?

Unless you have a bona fide contract that guarantees your rate, hour hours or your pay, yes, they can.

Bummer. Would I be faulted at all then if I decided to not accept the cut and walk? I already have another job offer and the manager decided to walk too. (Thankfully for her, she doesn't have to work anymore :)

If you have a better job offer, why would you stay?