Harvard Medical School has reduced its projected five-year deficit of $62 million to $37 million, according to predictions last month following significant staff and budget cuts.

But to cut back on the expected losses—which executive dean for administration Eric Buehrens attributed to costs of adding new buildings and faculty as well as smaller endowment payouts and grant funding—the school may still need to lay off employees, Buehrens said.

“The problem we’re working with is that the projected deficit is somewhat worse than we expected because of both internal and external factors,” he said.

Buehrens predicted that increasing payoff from the Medical School’s endowment—which was set at unusually low rates of 4 percent this year and 2 percent last year—would help the school get out of its hole.

“With payoff from the endowment looking better now, things should begin to turn around,” he said.

Although the deficits will be higher than school administrators had hoped, Buehrens said the deficit predictions have not been unexpected.

“We’ve built several new buildings over the past few years and new buildings mean more faculty and more costs,” he said. “When you make those kinds of investments it means we will run some kind of operating deficit. But eventually profits come in and we reach a financial equilibrium.”

In order to shave off nearly $25 million from predictions, the school offered a voluntary severance plan to more than 200 employees this spring, and 61 accepted the proposal. The school plans to refill no more than one third of those positions, Buehrens said.

Among the areas hardest hit by the severance packages was Countway Library, which lost its head librarian, two of her chief deputies and 12 other employees, library workers said in May.

A financial update issued by medical school Dean for Finance Cynthia L. Walker in June said that since October, the school has cut its budget by 5.6 percent, which helps to account for the reduction in projected deficits. Walker could not be reached for comment.

The school, which had an operating budget of $406 million in fiscal year 2003, spends most of its budget on personnel and space, Buehrens said.

Despite the 61 who will leave their jobs voluntarily, he said that involuntary cuts remain on the table.

“We’ve begun to exert a lot more control over hiring,” Buehrens said. “We haven’t ruled out the possibility of layoffs, but we certainly are hoping to minimize that.”

The school plans to lease empty lab space as well for an approximate $10 million in added income, according to Walker’s update.

“We’ve leased a lot of the lab space that we won’t need for the short term to affiliated teaching hospitals,” Buehrens said. “Whatever space we can’t use at the present, we’ll lease out.”