Faced with a budget deficit for the current and next fiscal years that could total $1 million or more combined, Oak Bluffs officials are bracing for hard choices likely to include a special town meeting to slash spending as well as laying off some town employees.

The issue of town finances came up informally at Tuesday’s regular selectmen’s meeting, although there already has been consideration of how to reduce staff and recast spending plans. Town administrator Michael Dutton estimated the town will be $350,000 in the red when the town closes its books at the end of the current fiscal year on June 30.

And the outlook is only worse for next year, he said, with an estimated $500,000 shortfall for the fiscal year 2010 budget, that was approved by voters at town meeting only last month. He said the deficits are due to a combination of factors, including a decrease in state aid, cuts to Chapter 70 educational aid, and a sharp decrease in local receipts.

“The outlook is not cheery,” Mr. Dutton said matter-of-factly.

“We can no longer maintain business as usual,” agreed selectman Ron DiOrio. “It is going to mean significant changes in the budget to get from where we are now to where we need to be.”

Chairman Greg Coogan suggested that layoffs are becoming more likely.

“I hate to even use the word. But I keep hearing these budget projections, and they seem to point in that direction,” he said. “People don’t think that will ever happen, but I think it’s closer than we think,” he said.

Finance director Paul Manzi appeared before selectmen in January at the halfway mark of the fiscal year to announce a projected deficit of around $336,000, due to plummeting revenue from licenses and permits, tied directly to a decline in new construction, as well as a drop in investment income and motor vehicle excise taxes.

By all accounts, those projections have become more dour over the past few months.

Mr. Dutton said the town normally collects over $3 million in local receipts in the form of building permit fees, although that figure is now projected to drop to around $2.6 million. As a cost-cutting measure, Mr. Dutton recently proposed an early retirement plan for all employees, those currently eligible for retirement and those who aren’t.

A memo to town employees dated April 28 under the heading “Voluntary Separation Proposal” explains that local receipts are showing a drop for the current fiscal year and next fiscal year, and factoring in a projected 3 per cent increase next fiscal year, the town will “most certainly be looking at employee reductions.”

Employees not currently eligible for retirement would receive a one-time payment of $5,000 under the plan, and receive all their accrued vacation time and half their accrued sick time up to 60 days. Employees that are eligible for retirement would receive a bi-weekly payment of the remaining balance in the position’s salary line item or regular hourly pay rate through July 2.

They would also receive a lump sum payment of four months’ salary on a regular hourly rate after July 16, and the town would continue to pay 75 per cent of their health insurance premium until July 2, after which the Dukes County retirement board would take over the payment.

Mr. Dutton said there have been no takers for the voluntary separation proposal. As a result, he said, selectmen will likely be forced to consider layoffs. When pressed, he said layoffs are likely.

“[Mr. Manzi and I] will be giving selectmen a variety of options to consider; including reduced staffing, reduced hours, reduced services, and possible layoffs, or a combination of all these,” he said.

After Tuesday’s meeting, Mr. Dutton said the shortfall for the current fiscal year may be closer to $420,000 or more, while the projected shortfall for next year is around $500,000. As a result, the town will need to hold a special town meeting — most likely in August or September — to cut spending in next year’s budget.

“It’s a technical thing,” Mr. Dutton said. “The [state department of revenue] requires you to reduce the budget before you set the tax rate.”

In a phone conversation, Mr. DiOrio also said layoffs are a strong possibility.

“We have some very tough choices ahead, and I think clearly layoffs will be an option. We are trying to be very proactive to address these budget issues as early in the process as possible, and in the final analysis we cannot go back and ask residents to give us more money,” he said.

He continued: “It will not be business as usual in 2010. It can’t be. The role of the selectmen is to come up with a balanced budget. We will not be spending money we don’t have. I have said right along the real problems won’t be in 2009, but in 2010 and 2011. Things will get better, there is no doubt about it. But before they do we will have to make some hard choices.”

Mr. DiOrio said town officials will look at all town departments to look for overlapping and redundancies, which could call for the elimination of some positions outright. He said considering the bad economy and substantial shortfall in the town budget, streamlining some town departments was the responsible thing to do.

“What you are seeing in Oak Bluffs is an open, candid discussion about what is going on with the economy and our finances. We can’t simply hide our heads in the sand, and we can’t simply pass this along to taxpayers. The are struggling too,” he said.

Members of the finance committee already have taken steps to address the budget crisis. Although the committee usually meets less in the summer, the committee plans to hold four meetings over the next few months prior to the special town meeting.

Earlier this week, Mimi Davisson, the newly elected chairman of the finance committee, sent a letter to Mr. Dutton and Mr. Manzi asking for more collaboration.

“We are going to schedule a regular agenda item first in each meeting to hear from you about financial issues,” Ms. Davisson wrote. “Because the financial situation is serious, it is essential for us to be working closely with you. Therefore, we would like to see both of you at every meeting, but depend on seeing at least one of you.”

Ms. Davisson in the letter asks that Mr. Dutton or Mr. Manzi regularly provide their full-year projections for the town’s revenue and spending for the current fiscal year, including explanations of unexpected variances as well as their latest full-year projections for the town’s revenue and spending for the following fiscal year.

“Given the urgency of the budgetary challenges that will need town meeting votes, we urge you to work with the selectmen to set the date for that special meeting as soon as possible so we can prepare for it,” she wrote. “Generally, the FinCom wants to move the budgeting process earlier to allow adequate time for reasoned decision-making and wide-spread communication to the public.” í