In another indication of the struggling economy both here and across the nation, Oak Bluffs town leaders on Tuesday reported a projected budget shortfall of $336,000 for the current fiscal year, due largely to declining revenues tied to the sharp downturn in new construction.

Selectmen said the shortfall for the current fiscal year, which ends June 30, will almost certainly result in spending cuts to most town departments. “We need to take action now,” selectman and board chairman Ron DiOrio said. “We don’t want to be here in May with not enough time to make up a $336,000 shortfall.”

At the request of Mr. DiOrio, finance director Paul Manzi appeared before selectmen to provide a financial update at the halfway mark of the fiscal year. The update brought alarming news, as Mr. Manzi announced that revenue from licenses and permits — mostly driven by new construction — is expected to drop $157,782.

“Building permits dried up overnight, basically,” town administrator Michael Dutton said. “That doesn’t bode well for builders and it doesn’t bode well for the town. Their misery is our misery.”

Mr. Manzi said revenue from investment income is projected to drop $85,775 from the $155,537 budgeted, a decrease of more than 55 per cent, largely due to falling interest rates. He said motor vehicle excise taxes are also expected to fall $93,050, or just under 14 per cent from the $674,827 budgeted, due to the fact that fewer people are buying new cars.

Mr. Dutton said the current budget was drafted before the economy took a downturn using what seemed at the time like reasonable projections. “Those were conservative estimates, but apparently not conservative enough,” he said.

There was brief discussion following the announcement of the projected shortfall, during which selectman acknowledged the tough choices that lie ahead. Selectman Roger Wey, also director of the town council on aging, said keeping employees was paramount and suggested across the board cuts to all town departments.

“In difficult times we need to do what we can to keep our employees employed . . . I run one of the smallest departments in town, but I would rather cut a certain percentage of my budget along with the other departments than lose positions,” Mr. Wey said.

Selectman Kerry Scott said some departments, such as the town clerk, will be unable to cut their budget.

Mr. Wey agreed, but he urged town leaders not to start cutting staff.

“A few years ago when voters rejected several overrides, we started to let people go. And it took us about three years to recover from those cuts,” he said.

Selectmen agreed several positions that are currently vacant — including a children’s assistant at the library and a human resources position — will go unfilled.

But Mr. Manzi warned the projected deficit may only be the beginning of the bad news. Gov. Deval Patrick is currently readying another round of cuts to the state budget, and some state officials have estimated he could cut as much as $500,000 in local aid to cities and towns by July 1.

Mr. Manzi also said state leaders could cut local aid as much as 10 per cent next year, which would mean approximately $170,000 less for Oak Bluffs.

Tax collector Cheryll Sashin said there has been an increase of approximately $50,000 in overdue taxes over last year.

Last year selectmen announced in February a budget deficit of around $2 million, prompting them to debate 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.

In the end the deficit was carved down to around $1 million, and voters approved a number of debt exclusions and overrides of Proposition 2 1/2 at town meeting to help balance the budget.

In other news, selectmen unanimously agreed to reappoint Robert Huss to the Steamship Authority port council. They also voted without dissent to appoint former town administrator Casey Sharpe to the Martha’s Vineyard Commission.