A plan to build a “green” city of 7,500 new homes in the hills south of Orcutt failed to clear the first hurdle on Tuesday, as the county Planning Commission voted 4-1 not to recommend it for further study.

The commissioners said they liked the “village center” concept of the North Hills project, including the proposed mix of affordable, middle-class and luxury homes; pedestrian-friendly streets, open space preserves and energy-efficient construction.

What they didn’t like, they said, was the proximity of oil rigs to the future homes. There are about 170  active oil wells on the 4,000-acre North Hills property, including wells inside the “village centers” where hundreds of homes are planned.

“I just don’t believe that a development and an oil field are compatible,” said Commissioner Daniel Blough, who represents the Santa Maria Valley.

As the Board of Supervisors opens discussions Monday on a proposed $758 million budget for next year, analysts predict a flood of red ink due to shortfalls in state and federal funding.

With the new fiscal year beginning July 1, the budget proposal comes up short by at least $1.2 million. Whether the gap between revenues and expenditures will continue to grow in future years rests on finding new funding sources and making tough decisions about what to spend.