As Gov. David Paterson has been telling lobbyists, lawmakers and anyone else who will listen, the fiscal state of New York is parlous. It’s some comfort to know we are not alone; other states are also facing severe challenges as a slowing economy and the crisis on Wall Street wreak havoc with their budgets. But given its heavy reliance on the financial industry, which accounts for 20 percent of all state tax revenues, and its extravagant spending, New York is in worse shape than most and must take more drastic steps to survive the storm.

The state’s usual bad-budget-year formula of hiking fees, raising revenue estimates and backdoor borrowing won’t be nearly enough to close a deficit now projected at $8 billion next year (as recently as a few weeks ago it was thought to be $6 billion, an indication of how fast things are deteriorating.)

E.J. McMahon, of the Manhattan Institute, has rightly called Wall Street revenues “fiscal crack,” and urged the state to get off it. It really has no choice. Even if Wall Street comes back, it won’t be anytime soon; and the financial industry is going to be smaller, more regulated and cautious than it has been in recent years, resulting in less tax money for the state.

With already-high tax and debt burdens, New York doesn’t have many options. To close the huge budget gaps, it is mostly going to have to cut spending, especially in the two areas where it has grown fastest in recent years and is the most excessive: Medicaid and education. That, and the state payroll, with its overly generous pension and health benefits, is where the money is. Paterson is going to meet with state union leaders later this week, give them the bad news and seek concessions, threatening layoffs unless he gets them. He, and the legislative leaders, should be prepared to follow through.

There is something else the state can do to ease the impact on local governments and school districts as it cuts spending, and it was brought up by Sen. Hugh Farley and Assemblyman James Tedisco at a Schenectady City Council meeting the other night: get rid of all but the most necessary mandates and allow more flexibility in how to meet them.