Harvard University said its budget deficit rose to $34 million in fiscal year 2013, a gap that will force the world’s richest school to trim near-term spending even as it proceeds with ambitious building plans and fund-raising.
The results, reported in the university’s annual financial report released Friday, show Harvard is in better financial condition than five years ago, during the financial crisis. But the deficit is up from $7.9 million in 2012, and school officials indicated their focus is still on containing costs.
Daniel Shore, Harvard’s chief financial officer, wrote in the report that the institution’s “ability to stay in financial balance going forward’’ depends largely on its “commitment to cost management and an embrace of innovative revenue opportunities.’’
The report said Harvard is changing health care benefits for future retirees to save money. It also is looking to narrow the list of vendors for contracts campuswide and is reorganizing libraries and technology services to make them more efficient.
Harvard said cuts in federal spending could present challenges for the university’s research laboratories, although it managed to make up for those shortfalls last year with private funding.
With a sprawling $4.2 billion annual budget, $34 million in overspending may appear relatively insignificant. But Harvard has been under the microscope of US debt-rating agencies since 2009, when stock markets plunged and the school faced a cash crunch that led to layoffs and cost cuts.
The university pledged not to borrow any more money after its debts peaked at $6.3 billion in June 2011, and total borrowing has since declined to $5.7 billion.
Harvard also reported continuing losses incurred by terminating interest rate derivative contracts. The university said it lost $345 million unwinding those contracts in the last fiscal year, bringing the total cost to nearly $1.3 billion since 2008.
Harvard had entered into the swaps nearly a decade ago to protect against potential interest rate increases as its prepared aggressive real estate development plans in Allston. The contracts became a financial albatross when rates actually declined and development plans were postponed.
The university recently unveiled plans to raise $6.5 billion from donors over the next five years. It has resumed a major expansion n Allston and is involved in several other projects, including construction of a new art museum and improvements at undergraduate houses.
Even with such bold plans progressing, Harvard President Drew Gilpin Faust said in a letter included with the report that the university—and all academic institutions—face broad financial and cultural challenges.
“A faltering economy has raised questions in the public’s mind about the value of a college education,’’ she said.
Harvard has the benefit of a $32.7 billion endowment—the largest of any school—that helps fund operations that cost $1.5 billion last year alone. Still, Faust said, budget pressures remain a constant.
“Harvard has not been immune to [economic] trends and we have to adapt,’’ she said.