Last night Governor Paterson gave a brief speech about the budget crisis in New York. His resounding message was we have to do more with less.

Ed Koch called the politics in New York a national disgrace several weeks ago. The former mayor of New York pinpointed the dysfunctional legislature and called for a new party predicated on “the reform wing” of the Democratic Party.

Mr. Koch has homed in on the political issue in New York: Whether the reform wing of the Democratic Party can tackle the problems that exist. The answer is unclear since great Democrats like Herbert Lehman, Al Smith, and Hugh Carey are distant memories and not likely to be resurrected. Moreover, reform politics has undergone a dramatic shift in a negative direction.

Perhaps the first step for any political organizations is an objective, careful, and non-partisan examination of the state’s financial status. Even Mr. Paterson has come to the inevitable conclusion that the state’s fiscal picture is bleak with at least a $6.4 billion deficit looming for the next budget year, a conclusion also accepted to by the Republican majority in the State Senate.

With this condition in mind, the governor ordered each state agency to reduce operating expenses by 3.35%. Presumably this would send a message to his commissioners. But according to estimates that can be extracted from this retrenchment, cost savings should total between $350 and $400 million dollars, or around 6% of the budget gap. Manhattan Institute Analyst E.J. McMahon calls this exercise “painless paring” — mild fiscal retrenchment — exactly what the state needs.

The place to begin with painless paring is Medicaid expenditures. At the moment, Medicaid in New York State is more expensive than California and Texas combined. Keep in mind that New York has a population of about 20 million and the aggregate California and Texas population is more than 55 million.

Can you argue that New Yorkers are more healthy than the residents of these other states? Or is Medicaid in New York employed as a campaign device to attract voters as Mr. Pataki, among others, brazenly demonstrated? There still are ads that appear on TV urging New Yorkers to seek Medicaid assistance if they cannot afford private medical insurance. Yet these ads never point out who pays for this give-away.

Increases in Medicaid spending and school aid account for approximately 60% of the budget gap for the 2009-2010 fiscal year. Clearly this condition alone warrants action by the governor and the legislature since there is almost no relationship between an increased expenditure in schools and student performance, notwithstanding claims to the contrary from representatives of the teachers’ union.

In fact, despite the relative improvement in New York City’s math and reading scores for grades three through eight there is scant evidence that the improvement is related to a 200% increase in the education budget over the last 15 years.

Compounding this fiscal nightmare is an anticipated 2.7% increase in taxes and fees that will further inhibit New York’s competitive position with contiguous states, where rates in Connecticut, Pennsylvania, and New Jersey are between 2% and 4% lower in cumulative state taxes than New York.

Whatever increase in New York State revenue may be, it will be more than offset by a proposed 10% increase in baseline spending by the legislators, state senators, and governor.

Clearly the appetite for additional spending is insatiable. There are interests to appease and unions to keep in place. There are lobbyists who line the pockets of legislators and law firms that are part of the state’s nomenklatura.

It is hard to conceive of painless paring, but without it the state will be at the brink of bankruptcy. Clearly Mr. Koch’s call for reform is needed. At the moment, however, neither Republicans nor Democrats can provide the requisite leadership.

So the question is who are the reformers? Who stands above parochial interests and who has the ability to harness legislative zeal for spending? At the least, the governor is one person who must restore fiscal sanity to a state budget that has lost its bearings.

Mr. London, president of the Hudson Institute, is a former candidate for governor of New York and author of “America’s Secular Challenge.”