The University closed the 2011 fiscal year with a $130 million deficit on $3.9 billion in expenses, a significant jump from the last year’s annual deficit of $900,000, according to Harvard’s annual financial report.

According to the report, the deficit stemmed from a 4.5 percent increase in spending, associated with higher compensation costs and the increased cost of payments associated with debt, which increased during the financial crisis of 2008.

“As a percentage of [the operating budget] it’s still reasonably small. With that said, any deficit is going to be a cause for concern,” University Vice President for Finance Daniel S. Shore said. “We want people to understand that we are strong financial managers and good stewards of University resources.”

Shore said the University plans to pursue methods to both cut costs and increase revenue in coming years to address the deficit.

Shore cited a number of projects aimed at increasing the University’s operating efficiency as part of the cost-cutting effort. Among these are the consolidation of the University’s IT systems, the overhaul of the University library system, and efforts aimed at “better leveraging purchasing power with vendors.”

“The aggregate of those activities that take place in multiple parts of the University, they add up,” Shore said in reference to the potential benefits of such changes.

Shore added that Harvard’s largest budget item is personnel expenses and said that administrators would be examining those expenses in the near future to find cost savings.

“There’s several different avenues [to decrease expenses]. Half of our budget is wage and benefit expenses,” Shore said. “There are a bunch of personnel and non-personnel things we are looking for on the cost side.”

In the wake of the 2008 financial decline and the subsequent recession, Harvard froze salaries and wages across the University in addition to laying off hundreds of workers in an effort to stem the deficit.

Shore said that cost-cutting measures are not the only way the University is looking to balance its books and that the University would be exploring avenues to increase revenue.

In fiscal year 2011, the University saw a 1 percent increase in revenue. Federal funding for research increased by $66 million to $686 million, student tuition and fees increased by $29 million, and current-use giving increased by 12 percent to $277 million. Despite this, Shore said the University would explore alternate methods of funding, a sentiment echoed by University President Drew G. Faust.

“Changing financial realities require an ongoing examination of our funding model with its reliance on government support, endowment returns, and tuition—all of which are expected to be either declining or constrained in the years ahead,” Faust wrote in the report.

Shore said that Harvard has contingency measures in place to respond to potential funding issues, including the continued threat of volatility in capital markets and the potential for long-term declines in federal grants.

We have “robust approaches to scenario planning,” Shore said. “We look at downside scenarios that presume that the downside scenario is quite a bit less than [anticipated].”

—Staff writer Justin C. Worland can be reached at jworland@college.harvard.edu.

This article has been revised to reflect the following correction.

CORRECTION: NOV. 4, 2011

The Nov. 4 article "FY 2011 Budget Deficit Climbs" incorrectly reported that Harvard's debt service payments had increased because of debt accrued during the 2008 financial crisis. In fact, while the debt increased during that time, the debt service payments come from debt that was also accrued before the financial crisis.