Faced with a budget deficit of as much as $2 million — the largest in town history — Oak Bluffs selectmen on Tuesday debated 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.

With revenue and new growth down and costs substantially up over than last year, selectmen agreed that desperate times call for desperate measures and nothing was safe from the chopping block. And while they pledged to try to avoid a Proposition 2 1/2 override — selectmen also conceded it may be unavoidable.

“I know it’s a dirty word in this town, but an override may be our best option,” selectman Duncan Ross said.

Town administrator Michael Dutton said the town is facing a budget deficit of between $1.4 and $2.1 million. He said costs for the Oak Bluffs school will rise 7.2 per cent and the town’s share for the Martha’s Vineyard Regional High School will increase 19.3 per cent over last year. The increase is an anomaly because the town last year saw a decrease in its assessment due to a change to the formula that governs the way the six towns divide school assessments.

The town expects to pay an additional $186,000 for medical insurance, $167,106 for the pension plan administered by the Dukes County retirement board and $111,465 for workman’s compensation and building insurance, Mr. Dutton said. The draft budget accounts for an increase in salaries for school personnel, but does not include expected raises for the town’s other union employees.

A negotiating team appointed by selectmen is now negotiating with the remaining collective bargaining unit, and the expected increase in salaries will add to the deficit, Mr. Dutton said.

Mr. Dutton also explained the new accounting standard for post-retirement benefits for government employees that will require the town to book the cost of medical coverage, long-term disability and long-term care benefits or run the risk of damaging its credit rating.

If the town decides to start setting aside money to meet the new standard, it would cost $596,403 this year and would increase incrementally over the next 30 years, Mr. Dutton said.

And as costs go up, revenues are going down. New growth in the town tax rolls, which peaked at $559,468 in 2004, fell to $183,910 last year, Mr. Dutton said.

“This is a crisis,” selectman Ron DiOrio said. “There is little doubt we have some hard decisions ahead of us.”

Mr. Dutton said even the most aggressive pencil-sharpening and belt-tightening will not add up to $2 million.

“Ultimately we can only cut so much. I want everyone to understand there is not a lot of discretionary funding in this budget,” he said.

The dire forecast cast a dark mood over the meeting and selectmen clashed at times with one another as well as members of the town finance advisory board. The biggest point of contention was the possible restructuring of the finance department and elimination of the town tax collector position.

Joseph Alosso, a finance board member and town wastewater superintendent, told selectmen that any plans to eliminate positions have been discussed with town department heads. The comment drew the ire of Ms. Scott, who accused the finance board of discussing the elimination of specific positions without the involvement or knowledge of selectmen or the town administrator.

“I know there have been dissections in front of employees that have personally made me very uncomfortable. On a humanistic level, any such talk need to take place very carefully and with the participation of Mr. Dutton. We need the full awareness of both the selectmen and the personnel committee. To this point, that has not happened,” Ms. Scott said.

Mr. Alosso also drew darts from Ms. Scott after he said the finance board had also discussed eliminating annual stipends for selectmen and other elected officials which could amount to a savings of $25,000.

But Mr. Alosso stood his ground. “I don’t think many of the elected officials serve because they want the $120 [stipend] they earn a month,” he said.

Ms. Scott later said many town officials pay their expenses out of pocket and she questioned the wisdom of eliminating the stipend. “That does seem rather unsporting,” she said.

Finance board member Frank Case said the town will have to get creative to find ways to balance the budget. He said an override to cover a $2 million deficit would mean an annual increase of $465 for the average Oak Bluffs homeowner.

“And remember, that is not just this year or next year, that is forever,” he warned. “That override will permanently be added to the town tax levy.”

Several school officials also took town leaders to task for suggesting that an increase in school spending was the main cause behind the projected deficit.

Martha’s Vineyard Regional High School principal Margaret (Peg) Regan said the high school’s instructional budget has increased only 1.4 per cent this year. The rest of the increase, she said, was due to fixed costs like salary and insurance. “We’re in the same boat as the towns, we’re trying to make the best of a bad situation,” she said.

The meeting turned contentious again late when selectmen took up what ordinarily would have been the routine reappointment of tax collector Cheryl Sashin. After selectman Roger Wey moved to reappoint Ms. Sashin with no discussion, Mr. Dutton recommended the selectmen hold off on taking a vote.

Mr. Dutton said finance director Paul Manzi and the finance committee have discussed possibly restructuring the finance department, which might include elimination of certain positions like the tax collector.

“This is not a reflection on Cheryl [Sashin’s] work, she does a great job,” Mr. Dutton said. “But I would recommend we wait before reappointing anyone to the finance team while we look for ways to make that department more efficient.”

Mr. Dutton suggested the town may want to hire an outside firm to study the finance department and look for ways to make it more streamlined.

Ms. Scott was openly upset at the prospect that the finance board and Mr. Dutton were considering eliminating positions without the selectmen’s knowledge. She also cited a state law requiring towns to have a tax collector and said she considered the reappointment a formality. “I feel like we are becoming a town riddled by broken promises,” she said.

But selectman Greg Coogan reminded Ms. Scott of her decision last month to hold off on reappointing principal assessor Dianne Wilson after she requested to work a three-day work week with longer days instead of a traditional five-day work week.

“We did sit here a few months ago when we had an assessor up for reappointment that you were willing to throw under the bus . . . sometimes we have to make judgments that aren’t popular, and based on those judgments I don’t think it should be suggested that I don’t care about people. And that is essentially what you are suggesting, and it’s unfair,” Mr. Coogan said.

In the end the board voted unanimously to extend Ms. Sashin’s appointment, but only through the end of the current fiscal year on June 30.