For the third year in a row, Oak Bluffs is facing another large budget shortfall for the next fiscal year — around $1.4 million this time — and town leaders are already considering ways to radically cut costs and boost revenue.

At a joint meeting last Thursday among selectmen, finance and advisory committee, school committee and personnel board, officials discussed a wide range of ideas to balance the budget, including increasing the hotel and meals tax, selling town-owned properties, increasing licensing and permitting fees and upping the amount employees pay for their health insurance.

The projected $1.4 million shortfall for fiscal year 2011 comes just six weeks after voters at a special town meeting agreed to cut $500,000 from the current fiscal year budget, cuts that required two town employees to be laid off and two others to have their hours cut in half.

Meanwhile the town closed the books on fiscal year 2009 on July 1 carrying a deficit of approximately $150,000, which forced the state Department of Revenue to reduce the town’s certified free cash. Town administrator Michael Dutton said last week the town still needs to make up that amount, which will force departments to tighten their belts even further in the months ahead.

“We really need to curtail our current spending from Jan. 1 through June 30. Hopefully we will end up with a balance at the end of the year, and maybe even a little bit of free cash. But remember we have a free cash deficit of $150,000 that we have to make up. It’s something we will be tracking,” Mr. Dutton said, adding:

“I will ask department heads to stop all nonpayroll spending after Jan. 1. We need to put a cap on spending.”

The budget cycle for the coming year is just beginning. The finance committee will host a series of public meetings and forums to gather comment and suggestions.

“This is the very first pass, and we are only starting to get an idea of what the budget might look like,” said board chairman Mimi Davisson. “But we want to get as many people involved in this process as possible.”

Mr. Dutton said the $1.4 million shortfall is a conservative estimate. Fixed costs, including employee benefits, contractual salary obligations, the pension assessment from the Dukes County retirement board and high school assessments are all expected to increase.

“We are all looking forward to the end of fiscal year 2010 so we can put the nasty year behind us . . . but we have another tough road ahead for [fiscal year 2011],” he said.

Mr. Dutton and town finance director Paul Manzi have put together a preliminary draft of next year’s budget, which among other things calls for spending $250,000 on road repairs, an item that was removed from the current budget.

Suggested cuts include possibly eliminating stipends for town boards, which could save about $25,000. Another idea is to increase the cost of dump stickers.

Mr. Dutton suggested the town look into joining with other towns to regionalize certain services, and he said hours could be reduced in non-critical departments. “Nothing is sacred. We will do an analysis of the entire town and the services we offer as we go through this budget cycle. Everything is on the table,” he said.

There is also a possibility that the town’s four collective bargaining units will be asked to reopen their contracts for salary reductions.

Mr. Dutton said adopting the local option to increase the local hotel and meals tax could generate between $300,000 and $320,000; the proposal is expected to be on the warrant of the annual town meeting in April.

Finance committee member Doug Best suggested the town consider moving municipal operations out of buildings in prime locations downtown or along the harbor so the properties could be rented or leased.

“Looking forward I think our problems may continue. I think we need to have a larger focus, and a larger plan on how to use the assets of this town. We could be using certain properties with value to generate revenue instead of for operational services . . . if we had been doing that two or three years ago we might not be in the crisis we’re in now,” he said.

In a straw poll, the group supported increasing the meals tax, or at least giving voters the chance to decide. It also backed the idea of increasing license and permit fees and selling town property.

There was little or no support for adopting a paid parking system, reducing hours of noncritical departments and renegotiating health insurance benefits.