With the rising cost of everything from salaries to health insurance premiums coupled with slowing commercial and residential growth, elected leaders in all six Islands towns will likely face especially tough decisions this budget season as they begin to draft their financial blueprints for the coming fiscal year.

Drafting budgets on the Island has traditionally been a dry, behind-the-scenes process that draws only scant public attention. For the most part, Vineyard towns in recent years have crafted budgets that do not require an override of Proposition 2 1/2, the state law which limits the annual increase in a community’s tax levy to 2.5 per cent.

But the trend of uneventful budget seasons will come to end this year for at least one Island town, as Oak Bluffs could face a deficit of as much $2 million, forcing voters to consider an override for the first time in six years. And with other towns facing the same trend of rising costs and declining revenues, many agree that all Island towns will face some tough financial decisions in the coming years that could extend well beyond Proposition 2 1/2 overrides.

“We live in a different and much more expensive world than we did ten years ago. The cost of everything from heating oil to salaries and health insurance goes up every year while revenues are going down, and there isn’t any indication that trend will stop,” said Al DeVito, chairman of the West Tisbury finance committee. “It’s reaching the point where we have to start taking greater fiscal control and change the way we do business.”

Mr. DeVito said West Tisbury’s budget has grown 42 per cent over the past five years. If that trend continues over the next five years, he said, the town budget will climb past $18 million, which in his opinion is far more than what the town can afford.

This year, however, all indications are that West Tisbury will not require an override, Mr. DeVito said. Last year’s budget of approximately $12.5 million is projected to increase to around $12.8 million, a relatively manageable increase for the time being.

But because the town is forced to pay more and more for its share of the regional high school and up-Island school district, override requests may be unavoidable in the coming years, Mr. DeVito said. Voters at town meeting have shown little inclination for questioning or disapproving school budgets, while the finance committee has no authority to make cuts to the spending plan.

“About 85 per cent of the budget is already assigned to us because we’re already locked into the schools, debt services and salary [increases]. So we really only have 14 per cent of the total budget available for controlling expenditures, and that is not enough,” Mr. DeVito said.

He said drafting town budgets will become more difficult in the years to come. There is only a finite amount of land that can be built upon, which puts a damper on future growth to boost the town tax rolls. While the tax levy can expand due to property revaluations, the trend of growth will eventually begin to flatten out in all Island towns as the number of buildable lots shrinks.

In Tisbury, for example, there are only a few remaining lots still available for development which limits future growth on the town property tax rolls. Despite these limitations, Tisbury town leaders do not anticipate an override this year. A draft budget now stands at $19.9 million, and even though that figure represents an 8.6 per cent increase in spending, the increase will be offset by growth in revenues.

But town administrator John Bugbee agreed avoiding overrides in the coming years will not be easy. He said town leaders ask town departments each year to stay within 3.5 per cent of the previous year’s budget, and early indications are that department heads will be asked to trim even more in the coming years.

“There is no question we will have to be innovative to avoid overrides in the coming years. As a rule, municipalities are not immune from problems in the overall economy, and right now people agree the financial forecast is bleak. Less people are going to building new homes, less people will be visiting the Island, less money will be coming in . . . meanwhile we are paying more for everything,” Mr. Bugbee said.

He said as a rule, towns try to avoid overrides. If approved, an override is permanently added to the town tax levy, he said. And if rejected, town officials have the unenviable task of cutting the budget to erase the deficit.

“If the override is rejected at town meeting it becomes a crap shoot, and as a rule residents [of the Vineyard] do not like overrides. Once an override gets shot down all bets are off — it becomes a cutting game, whether it be services or personnel,” Mr. Bugbee said.

A recent story in the Boston Globe reported that voters across the state last year rejected 59 of 89 override proposals, marking the lowest approval rate statewide since 1999. Early on in this budget season, a total of 25 towns have already scheduled override votes, a figure that does not include dozens of other towns considering such votes.

While the average override request last year was around $640,000, the average this year is a hefty $1.9 million.

The figure does not include towns that request limited overrides to pay off debt service. Debt exclusions, as they are called, are fast becoming a popular tool for a town to address a financial shortfall in the short term without permanently adding to the town’s tax base. But the tool often becomes a wedge that divides communities because it allows voters to cherry pick increases for schools or specific town departments.

And there is a growing sentiment that Proposition 2 1/2 may cause more problems than it solves. The apparent limitations have also forced some towns to adopt new tactics to convince voters to approve overrides.

In 2005, for example, the town of Arlington requested an override which came with the caveat that town officials would vow to control spending and not to place another override on the ballot for five years. In Amherst this year, town officials made a $2.5 million override part of a three-year financial plan.

Finance leaders on the Vineyard have not embraced such tactics yet, although debt exclusions been approved in various Island towns over the years. Aquinnah voters last year approved two Proposition 2 1/2 debt exclusions for a new highway department dump truck and repairs to the old town hall. Oak Bluffs voters in recent years have approved debt exclusions for property purchases and new equipment for the town wastewater plant.

Aquinnah town administrator Jeff Burgoyne said debt exclusions are preferable to overrides because they do not mean a permanent addition to the town tax levy and also give voters more direct control over spending.

“It allows the voters to decide for themselves just what they can and cannot live without,” he said.

Mr. Burgoyne said finance committee members in Aquinnah actually received good news this year. The town is going through its triennial property revaluation, which automatically provides a boost to the town’s tax base, while the town’s annual high school assessment is projected to decrease by about $165,000 due to a change in the state formula.

Last year’s final budget of $3.1 million is projected to climb to an estimated $3.3 million this year, Mr. Burgoyne said, which should not require an override.

But he concedes that even Aquinnah, one of the smallest towns in the commonwealth, will likely face some tough financial decisions in the coming years that might call for Proposition 2 1/2 overrides. He said residential growth is down from previous years while the cost of salaries, benefits and other fixed costs continues to climb.

Mr. Burgoyne said the town has already cut some services once deemed untouchable to save money, like the hours of operation for the town dump and library. Indeed, towns across the commonwealth are more apt to consider cutting town services then adding them.

“I think town officials these days are more inclined to draft a budget based more on projected revenues than expected costs . . . they don’t want to put the cart before the horse. At the end of the day you must build a budget within the confines of how much money the town will collect,” he said.

He agreed that overrides can be potentially devastating. In 2004 voters in Aquinnah rejected three separate override attempts before finally agreeing on a plan to balance the budget.

And he said Island towns will soon have to start thinking outside the box, including what has traditionally been shunned on the Vineyard: joining with other towns to provide certain services.

“[Regionalization] has not always been the most popular thing on the Vineyard, but that may be the direction we are heading in,” Mr. Burgoyne said.

Tisbury town treasurer Tim McLean agreed. He pointed to the new accounting standard called GASBY 45 which will require Island towns to start setting aside millions of dollars each year to account for their employees’ post retirement benefits, or run the risk of damaging their credit rating.

Mr. McLean said one way to address the problem might be for Island towns to establish a collective fund that allows for a more favorable return on their investment. “I do think we need to streamline the way we do business and look for savings wherever we can get them. I think it’s quite possible that we all might be faced with the Oak Bluffs situation in the coming years,” Mr. McLean said.

The projected deficit in Oak Bluffs of between $1.4 and $2.1 million is by all accounts the largest in town history. Town officials have already discussed a wide range of painful cost-cutting measures, including eliminating salaries for elected officials, combining debt with other towns, restructuring town departments and eliminating positions.

A special committee has been appointed by selectmen to explore possible payment in lieu of taxes for large nonprofits located in town like the Martha’s Vineyard Hospital, while rumors have circulated around town hall of a list compiled by town leaders for employees targeted for elimination and possible early retirement.

Thad Harshbarger, chairman of the Oak Bluffs finance advisory committee, agreed that drafting a budget under the confines of Proposition 2 1/2 is not easy. “Think about it, every year the salaries [of town and school] employees go up, but we have to hold the line. Every year the cost of doing business goes up, but our job is to find a way not to raise taxes . . . it’s a juggling act,” he said, adding:

“I wish I had the answers — or I wish someone else had the answers and would share them.”