Town employees may soon be feeling the effects of the economic downturn as Oak Bluffs continues to wrestle with stark financial projections.

Selectmen met with the finance committee and personnel board on Tuesday to tackle its projected budget shortfall for fiscal year 2012. Finance committee member Mimi Davisson said that based on initial revenue projections, her board was looking at a deficit of between $500,000 to $1 million. Among the suggestions to narrow the gap was a proposal to lengthen the interval between step increases for town employees. Oak Bluffs town employees are currently subject to annual step increases of 2.5 to 3 per cent. The town is currently negotiating four union contracts as well as a number of non-unionized contracts.

“A step is defined historically as a year but there is no mandate in any law that says that that is a reality,” said selectman Ron DiOrio, who called the town’s financial problems “serious.”

“A step could be a three-year process or however you define it. I would think during the negotiation process and the collective bargaining process that the definition of what a step is is up for grabs. In a new contract all bets are off,” Mr. DiOrio said.

Another suggestion floated was the possibility of shortening the work week for some town employees.

“There has been some discussion about possibly taking the town hall to a four-day work week,” said selectman and board chairman Duncan Ross. “I’ve checked with the library to see what effect it would have with them and they would be able to keep their certification if their hours were reduced.”

Also on Tuesday David Richardson stepped down as town moderator, a position he held for 12 years. The board reappointed Robert Huss as the port council member of the Steamship Authority.

Finally selectmen heard a request from Oyster Bar and Grill owner Michael Gillespie for an entertainment license. The move puzzled selectmen, with a little over two weeks left in the year and an annual entertainment license fee of $500.

“Are you planning to do anything between now and Dec. 31?” asked Mr. Ross.

“I’d really like to have a New Year’s party,” Mr. Gillespie said. When pressed, he said that he hadn’t ruled out a Christmas party as well.

Mr. Gillespie said approval of the license would make it easier when he went to reapply and that without it he may go out of business. A notice of the property’s foreclosure appeared in last week’s Gazette. The restaurant previously had an entertainment license but lost it due to a substandard sprinkler system. There had also been complaints from some neighbors in the Camp Ground about noise. Abutters attended the meeting to speak against the approval of the license, while local businesses rallied to the side of Mr. Gillespie.

Bob Claremont, representing the Camp Meeting Association, expressed concerns about noise and spillover from events.

“When there’s parties people tend to mingle especially in the alleyway alongside the establishment that leads into the Camp Ground,” he said. “That has caused problems in the past.”

Oak Bluffs Inn owner Erik Albert spoke in favor of the license approval.

“I think he’s a great neighbor,” Mr. Albert said. “Living downtown there’s things we deal with. And I think with all the new taxes that we put on the business owners that we now incur you’ve really got to move both ways. My guests enjoy going to the Oyster Bar and seeing live music and these are people that dine out and pay taxes to the town.”

Selectman Greg Coogan was wary of continued noise complaints.

“You are right on the neighbors’ doorstep,” he said. “It does scare the heck out of us that you’ve got a bass amplifier.”

Still the selectmen were reluctant to impose further hardship on the restaurant and voted unanimously to approve the entertainment license.

“We’re in tough economic times and we need to do everything we can to help the business community,” said Mr. DiOrio.

After the approval, organizers of a Haitian benefit at the Nye Gallery on Saturday announced that there would be an after party at the Oyster Bar and Grill with a number of Island bands, prompting quizzical expressions among the selectmen.