Harvard’s color may be crimson, but the University stayed out of the red this year.

Amidst rising expenses and concerns about future revenue growth, Harvard maintained its financial footing this year, the University announced yesterday in its annual report for fiscal year 2006.

But the University’s reported operating surplus of $100,000 on $3 billion in revenue was markedly lower than last year’s $44 million surplus. This year, the rise in expenses outpaced revenue growth by two percent, in contrast to even revenue growth and expenses the previous year.

The report highlighted several causes for the increase in expenses, including higher spending associated with employee benefits and space and occupancy costs. In particular, utility costs skyrocketed by 39 percent after growing by 10 percent last year.

“Although it was a year of significant transition in many parts of the University, the financial results remained strong,” said Interim President Derek Bok in a letter preceding the report.

But results may not remain as strong in the future, vice president for finance Elizabeth Mora and treasurer James F. Rothenberg cautioned in another letter preceding the report. They expressed doubt about the capacity of future revenue growth to keep pace with inflation. They also expressed concern about the endowment’s future growth rate and federal funding for research.

CASH OUTFLOW

Harvard’s expenditures increased by about $240 million this year, primarily as a result of increased employee benefit costs and changes in space and utility fees, according to the report.

The cost of employee benefits—including health plans and pensions—rose by 12 percent this year, after a 3 percent rise the previous year, as a result of interest rate changes.

Post-retirement health costs skyrocketed 30 percent this year after dropping 28 percent last year.

To combat the rise in benefit costs, the University will implement “a multi-year health strategy...with several objectives including improved cost efficiency and expanded health plan choices for employees,” according to the report.

BUDGETING FOR BUILDING

New building costs made up 49 percent of all capital expenditures. That figure included ongoing construction on the 510,000 square-foot Northwest Science Building and 137,000 square-foot Laboratory for Integrated Science and Engineering (LISE). The University also finished construction on the Biological Research Infrastructure—75,000 square feet of laboratory space—and the Center for Government and International Studies (CGIS).

The University also continued its expansion into Allston, acquiring five new properties for its portfolio.

Overall, the University added 600,000 square feet of physical space in 31 new capital projects, bringing Harvard’s total square footage to 23.8 million square feet.

It invested $422.5 million in 360 active capital projects—which focus on expanding Harvard’s physical resources—less than last year’s $469.9 million invested in 329 capital projects and acquisitions.

Maintaining Harvard’s existing physical properties consumed the other 51 percent of capital expenditures this year.

TAKING IT TO THE BANK

Despite the specter of rising expenses, the University succeeded in keeping costs constant in several areas.

After a 10 percent rise last year, the University did not increase spending on supplies and equipment this year. The report attributed the savings to “University-wide contracts with vendor partners together with cost-conscious purchasing practices.”

Meanwhile, the rate of growth of salary and wage costs slowed to 3 percent from the previous year’s 6 percent.

The report expressed concern about relatively flat growth in funding for sponsored research, which consists of grants from outside groups like the National Institutes of Health. Sponsored revenue grew one percent this year after six percent growth last year.

Vice President for finance Elizabeth Mora did not respond to requests for comment last night.

—Staff writer Cyrus M. Mossavar-Rahmani can be reached at crahmani@fas.harvard.edu.