Princeton University announced this week that it was facing its first budget deficit in 10 years.

A university official yesterday downplayed the significance of the $1.1 million shortfall, saying it was an insignificant sum when compared with the school's $400 million annual budget. But the official, Princeton's Financial Vice President Richard R. Spies, said the deficit was serious enough to warrant a series of cutbacks in university spending. "A million dollars is a substantial amounty of money by anybody's reckoning," he said.

The deficit, which Princeton President Harold T. Shapiro announced at a faculty meeting on Monday, is largely the result of a sharp drop in alumni donations, said Spies. He added that the university library's budget overrun was another major factor in this year's fiscal problems.

Princeton's alumni gave about $1 million less than expected, in part because of last October's stock market crash, Spies said. But while he said that the crash certainly had played a major role in causing the university's deficit, he was not sure what effects the crash had on the budget.

The deficit, Princeton's first since the 1977-78 fiscal year, comes in the wake of a particularly profitable year for the university. Last year, boosted by record alumni donations, Princeton recorded a surplus of $400,000.

Though unexpected, the deficit is not a cause for immediate panic, Spies said. Princeton is unlikely to institute severe budget cuts in any one area and will concentrate instead on finding new sources of revenue, he added.

"We're not going to go slashing budgets to try and make it all balance tommorrow," said Spies. "In the context of a $400 million budget, this is a very small number."

Harvard's Vice President for Finance Robert H. Scott echoed Spies' views on the deficit, saying that the budget shortfall was probably not a cause for alarm. Scott, who said he was not familiar with Princeton's financial situation, said that an institution of Princeton's size should have little difficulty coping with a small deficit.

"Princeton is an extremely well-run institution, very strong financially," said Scott. "They should have no problem handling a deficit."