With a special town meeting to cut a quarter million dollars from the current fiscal year budget in Oak Bluffs already scheduled for Feb. 22, on Tuesday selectmen turned their attention to the 2012 budget where the situation is even worse, with a $1.1 million projected deficit.

At the outset selectmen voted to approve a hiring freeze for the coming year, a move that will save the town $300,000.

But whether town leaders will need to ask voters for a Proposition 2 1/2 override remains an unsettled question.

Last month selectman and board chairman Duncan Ross predicted the need for a general override in April, but on Tuesday selectmen got to work on a plan to slash spending. Town administrator Michael Dutton agreed that it is long overdue.

“Revenue seems to have played a significant role in the last two years worth of shortfalls,” he said.

To illustrate the town’s changing fortunes Mr. Dutton compiled a table of the town’s yearly revenue projections. In the coming fiscal year the town expects to collect less in local receipts than it did seven years ago and far less than during the boom fiscal year of 2009 when the town collected almost $1 million more in license fees, fines, school and library revenues, penalties and interest on taxes and marina receipts, among other things.

“There’s a lot less business being done through the town,” Mr. Dutton said.

At the same time ballooning pension assessments and health insurance costs have compounded the problem.

Mr. Dutton defended the town’s position.

“There’s this idea out there that Oak Bluffs is taxes and taxes and taxes,” he said. “The Oak Bluffs levy limit is the lowest of the down-Island towns. We provide about the same services as Edgartown and Tisbury for about $3.5 million less than Edgartown does.”

Nevertheless, the town is projecting a $1.1 million deficit in the coming year, and to balance the books selectman Ron DiOrio called for a townwide hiring freeze that will leave several vacant positions unfilled, including the town reference librarian and finance director. It would also close the door on added positions such as the police department’s proposed animal control officer which Mr. DiOrio said would cost the town up to $75,000 including fringe benefits.

“I’m doing this because I think we all need to tighten our belts,” he said. Selectman Gail Barmakian applauded the move but said she would like to see an allowance for exceptions to the freeze in public safety and in hiring a town accountant. Mr. DiOrio agreed that public safety is a priority but said the town’s financial work can be contracted.

“It is not that I do not support [these positions] — what I’m saying is that we are not in the position to afford them at this time,” he said. “We have to do more with less.”

Selectmen agreed to impose the hiring freeze, although town department heads with needs may come and argue their case before the board.

Finance committee chairman Bill McGrath disagreed with the approach.

“Although a hiring freeze sounds great in concept, as I’ve mentioned at least twice before . . . that’s a really bad way to run the town,” he said.

Instead his committee called for drastic cuts across town departments in salaries, administrative staff, legal and technical assistance, and travel, as well as some tangible reductions in services such as ending town rubbish collection which costs $70,000 annually. Mr. McGrath also proposed increasing the period between step increases for town employees from every year to every three years.

“There are so many departments and parts of the budget that are untouchable,” said finance committee vice chairman Steve Auerbach. “I don’t see how we can go from $300,000 to $1 million without looking at the untouchable parts of the budget.”

Mr. DiOrio agreed.

“A lot of departments are going to have to take some serious hits,” he said, using as an example the budget proposed by highway superintendant Richard Combra Jr., who was in the audience. “I don’t think we’re in the position to buy another truck, I don’t think we’re in the position to buy a frontloader at $70,000, and it breaks my heart to say that.”

Mr. DiOrio also said the town is paying too much in deductibles to insure town buildings and vehicles and that it should move toward a system of self-insurance. He also singled out payments in lieu of taxes as a possible increased revenue source for the town.

“It will never make any sense to me as to how . . . Partners [Health Care which owns the Martha’s Vineyard Hospital] negotiates [payments in lieu of taxes] in Cambridge and Boston and we get a deaf ear here,” he said.

At the end of the meeting community development committee member Renee Balter suggested the selectmen invite residents to hold a yard sale in Waban Park to benefit the town.

“I’ve got an old loader and a rubbish truck,” said Mr. Combra.

Selectmen will meet again with the finance committee next Tuesday at a special meeting to discuss ways to cut an additional $800,000 from next year’s budget.

Also on Tuesday selectmen appointed Jim Westervelt as a representative to the Island Housing Trust.