Years of politicians’ spending at a much faster rate than inflation have caught up with Rhode Island. The numbers crunchers now peg the state budget deficit at as much as $450 million for next year.

Can business growth turn around Rhode Island’s financial outlook anytime soon? Not likely. With the nation’s worst business-tax climate, at least according to the Washington-based Tax Foundation, too few entrepreneurs are coming here and too many who start here leave, in part because of the tax structure, and in part because of problems with public education and other ills. They take their taxpaying ability with them.

In the past, Rhode Island’s economy tended to follow that of the nation — if it did not boom as dramatically during good times, neither did it sink as precipitously in bad times. But the state’s economy seems to have become more problematical. As U.S. gross domestic product grew at an annualized 3.9 percent in the third quarter, Rhode Island’s economy apparently slowed, University of Rhode Island economist Leonard Lardaro reported. And he made a big point of citing the role of the state’s budget deficits in the state’s dreary economic prospects.

While Mr. Lardaro places the odds of a national recession over the next six to nine months at 45 percent, he put the probability of a Rhode Island one at “an uncomfortable 65 percent.”

But there is often opportunity in difficult challenges.

Rhode Island can use this crisis to reinvent itself, operating more efficiently and more realistically in a competitive world, making changes that would benefit its citizens for years to come. If, on the other hand, the governor and the legislature try to do again what they have done for the last several years — apply patches, raise fees or selected taxes, and leave behind massive out-year deficits — they might well hasten the pace of the state’s decline.

Systematic change must take place, starting now. These changes would not be pleasant initially, but it is hard to see how they can be avoided if the Ocean State is to recover any time soon.

First, a caution: Hiking income taxes is not the answer. Indeed, the state must have a tax burden no more than adjacent states’, lest it speed the flight of taxpayers, including business owners, further draining the tax coffers in the long run, and making life harder on the ever-fewer working people left behind. Rhode Island needs to make its tax structure (state and local) more competitive, encouraging business activity, to create more jobs and tax revenue.

These areas cry out for reform:

• Public-employee pensions and other benefits are not sustainable. Political leaders must take emergency action to change the pension system, at both the state and local levels, as quickly as possible. That means passing laws restraining cost-of-living escalators, requiring higher minimum retirement ages, and putting new employees on a 401(k)-style system.

The state must undertake a serious attempt to calibrate these benefits, including employee health insurance, to the real world and long-term ability of taxpayers to sustain them.

In the past, the inordinate power of the public-employee unions in this small state has frustrated any major reforms. But we have hit a wall. This can’t go on. So, among other things:

• Make bargaining between state and local officials and public-employee unions more transparent to the public, so that there is less chance of overly generous deals between political leaders and their union supporters.

• The state has onerous overheads for government services. That is because there are too many state agencies, boards and commissions for such a tiny place. Just one example: Why does this state have an Atomic Energy Commission, with a director who got paid more than $135,000 last year?! And why can’t the functions, say, of the Department of Elderly Affairs be put into, say, the state Department of Human Services, or the Department of Mental Health, Retardation and Hospitals into the Health Department (of all places). More immediately, of course, state officials must urgently (if sadly) look for jobs whose functions duplicate those of others, and cut them.

Perhaps even bigger savings can be wrung from consolidating the functions of many towns regionally. That the state has to deal with 39 cities and towns worsens state government efficiency and jacks up its costs. And the lack of economies of scale boosts the costs of each municipality, helping to lift property taxes to a much higher level than needed to provide current services. (While income taxes are a competitive tax problem, the biggest tax challenge in the state is probably local — property taxes.)

Look for more ways to collaborate on services with Massachusetts and Connecticut, such as in transportation and environmental protection.

Consolidate, consolidate, consolidate!

• Welfare benefits must be brought much closer to the national average — and in line with what Rhode Island can afford over the long term. Eligibility must be tightened, time limits for benefits must be adjusted, and recipients must be required to prove beyond doubt that they are U.S. citizens before they can receive extended benefits.

Rhode Island has an honorable tradition of helping the needy; it has a moral duty to continue to protect the neediest. But it is too small to carry the country’s burden on its shoulders; it cannot function as a welfare magnet, drawing in the poor from other states that are running surpluses and can better afford to serve them.

The executive branch, the legislature and the judiciary must look wherever they can trim unneeded programs and, regrettably, staff. So far, the governor is the only leader who has begun doing so; but then, he had little choice.

Again, none of this would be pleasant or free from political turmoil. But the easy decisions have been made, and the avoidance tactics of some politicians (and the groups that want ever more services) have brought us to the brink of a financial abyss. Rhode Island must reinvent its government if it is to prosper in the coming years.