The Kennedy School of Government (KSG) plans to close its Washington office, restrict administrative budgets and decrease new faculty hirings in response to the recent economic downturn and the events of Sept. 11, KSG Dean Joseph S. Nye said in an interview yesterday.

The cost-cutting moves come as the KSG attempts to tighten its financial belt in order to balance its budget. At his annual “State of the School” speech at the ARCO Forum on Tuesday, Nye announced a projected $3 million operating budget deficit for the current fiscal year.

Though KSG faculty were informed of the budget shortfall at a meeting in October, Nye’s speech was the first public recognition that one of the University’s schools is feeling the pinch of financial difficulties related to the national economic slowdown.

While the school has run planned deficits in recent years—to meet the needs of its extraordinary growth, Nye said—current events have forced a reassessment of its financial outlook.

“When you look at what has happened to the market, you realize that the payout of the endowment is going to be less,” Nye said.

And donations to the school are expected to slow down in the wake of the events of Sept. 11, Nye said.

Still, Nye said he does not anticipate difficulty in cutting expenditures down to size. “It’s not a big problem to cut three percent out of a budget,” Nye said.

Nye said cuts will be aimed at the KSG’s peripheral programs, and the school’s core curriculum will not be affected.

The closing of the school’s Washington office—a site for seminars and executive education programs—is slated for “sometime around the turn of the year,” he said.

Nye also listed the freeze on administrative spending and slowing of junior faculty recruitment as necessary measures.

As one of Harvard’s 12 faculties, KSG is responsible for its own budget and has its own sources of funding.

Across the University, financial officers said that national economic circumstances had altered expectations about future spending—but not to the extent of the Kennedy School.

Harvard Business School (HBS) Chief Financial Officer Donella M. Rapier said that while many of its peer schools have already taken across-the-board cost cutting measures, HBS hopes to avoid wide-ranging cuts. “We’re looking very closely at any discretionary spending and limiting that,” she said.

Harvard Law School spokesperson Michael A. Armini said that the school expects to be in the black this year. Fundraising efforts in October were more successful than ever, he said.

University Vice President for Finance Elizabeth C. Huidekoper could not be reached for comment yesterday. But a University official said that the central administration was monitoring KSG’s efforts closely.

While the University’s top governing board has been worried about the school’s finances for some time, the new initiative to cut costs came from the KSG’s top leadership, the official said.

Nye said that the Kennedy School faculty have been understanding of the need to cut costs.

“They realize that we’re all in this together, and everybody has to pitch in,” he said.

Kennedy School Professor Richard J. Zeckhauser said that cuts would not significantly impact faculty members.

“I think that it will force us to focus our efforts a little bit,” Zeckhauser said.

Many of the measures the school is taking, such as the elimination of the under-utilized Washington office, would probably be prudent with or without a financial crunch, Zeckhauser said.

“You’re not going to hear of people being laid off,” and faculty dinners, “are more likely to be chicken,” he said.

Though most of Harvard’s schools are expecting to report a balanced budget, last year the University’s endowment dropped for the first time in 17 years.

Universities across the country are implementing drastic measures to cope with budget difficulties.

Cornell University recently announced a hiring freeze, and the Massachusetts legislature cut the state’s contribution to the state university system last week.

—Daniel P. Mosteller contributed to the reporting of this story.

—Staff writer David H. Gellis can be reached at gellis@fas.harvard.edu.

—Staff writer Catherine E. Shoichet can be reached at shoichet@fas.harvard.edu.