MILLINOCKET, Maine — The loss of $2.3 million in property tax revenue because of the auction of paper company machinery is creating the biggest financial crisis in Millinocket history, the town’s manager said Thursday.

Layoffs and deep cuts in services will be required, Town Manager Peggy Daigle said.

Daigle is still developing her plan to cut as much as $3 million from the $6.5 million in combined town and school budgets proposed for the next fiscal year. She hopes to finish her budget proposal by July 1, she said Thursday.

Daigle declined to speak in great detail but said the loss of tax revenue “will mean a reduction in [workforce]. It will mean a significant reduction in service levels.”

The owners of the machinery, Cate Street Capital and its other companies, including Great Northern Paper Co. LLC, are the town’s biggest single taxpayer. Cate Street announced Tuesday that the last remaining paper machine and other equipment would be auctioned next month to help the company pay at least $6.8 million in taxes and debts to vendors and to help fund its East Millinocket paper mill operations and a proposed pellet mill for the industrial park in Millinocket.

The machinery includes the No. 11 paper machine that was once touted as the most modern in North America. The machines carry a valuation of slightly more than $77 million. The town is pursuing, but hasn’t yet filed, liens on the company’s property in pursuit of $2.3 million that Great Northern Paper owes Millinocket in property taxes for the 2013-14 fiscal year, said Richard Angotti Jr., council chairman.

The Town Council met Thursday afternoon and has set a special meeting with town and school employees for 4 p.m. Tuesday at Stearns High School to discuss the fallout from the funding loss.

Angotti and Councilor Michael Madore encouraged residents to attend Tuesday’s meeting. Given the decline in the town’s population and revenues, this year’s cuts will likely be permanent. Residents need to think carefully about what kind of town they want and can afford, Madore said.

“There is no doubt about this. There is no money. No. 11 goes, the steam plant goes, and there’s one third of the town’s revenue that is gone,” Madore said. “Once you do make a cut, it is final in this instance. The cuts will be hard, severe. They will be important, but I don’t want them to be something we can’t get back if we need it.”

The full economic impact of the paper machinery’s loss won’t be felt until the 2015-16 tax year, Daigle said. She proposes the $3 million cut to cushion that impact by effectively spreading it across two years. She proposes a $600,000 cut from the town and school budgets by July 1, the start of the new fiscal year.

Daigle said she had some broad ideas about what town leaders can do to balance the loss of money, but she wants to hear from others before she recommends action to the council.

“I want this to be driven by the staff and not by me,” Daigle said. “The [town and school] department heads have to look at what are the programs or services that get decreased or eliminated. They also have to ask, of the programs that get eliminated, what would be the impact on the revenues these services generate?”