NEXT TO MONEY, the item in shortest supply in New York City's government in recent years has been candor. The truth about the city's financial condition was concealed as long as it could be. When further concealment became impossible, part - but not all - of the truth was revealed. Now, the city's new mayor, Edward I. Koch, seems to have decided that his best hope is to tell the full story. He is right, of course. If the figures he is beginning to use are accurate - and we have no reason to disbelieve them - they ought to bring a little more realism to discussions of what is to be done about the problems of New York.

The city, Mayor Koch says, faces a real deficit of about $1 billion a year, as compared with the $400 million-or-so figure that has been thrown about regularly in recent months. The $400-million figure is the legally defined deficit. It ignores some $600 million in expenses that appear in the city's capital budget and that are to be covered by additional borrowing. The Mayor says that in the next four years he may be able to cut his annual dificit in half - by reducing the number of city employees another 10 percent, by cutting other expenses by 12 percent and by holding wage increases to practically nothing. But unless additional financial help is forthcoming from Albany or Washington in the neighborhood of a half-billion dollars annually , Mayor Koch adds, the city cannot balance its budget in the foreseeable future.

That is the same picture of New York's real condition that nongovernment observers have been painting for some time. But it is one that has usually been obscured by discussions in New York, Albany and Washington about the city's difficulty in financing its debt. That has happened partly because the financing problem was more immediate and partly because that problem could be solved more easily than the aannual budget problem. The two are related, of course, but unless New York City can balance its real budget rather quickly, all that the complicated negotiations about financing will be accomplishing is to get the city still deeper into debt.

We do not have any particular solution for New York's problems. Some experts believe it won't become solvent until either Albany or Washington picks up a larger share of the welfare bill. Others say the city can trim its budget more than the mayor thinks it can. No one we know if believes the city can raise more money by increasing taxes without driving more jobs away and eroding its already weak tax base. The recent moves by the mayor in raising the salaries of high-level employees and by Gov. Hugh Carey in urging a sweeping tax cut for New York State have not been encouraging.

As the city comes down to another financing crisis - this one next summer when the federal loan program expires - it is time for Albany and Washington to think about the long run as well as the short run. That financing crisis can be avoided once again, perhaps even without federal help, as Sens. William Proxmire (D-Wis.) and Edward Brooke (R-Mass.) have argued. But avoiding it, and doing nothing about the long-term budget problem, is simply a way of postponing disaster. Mayor Koch's candor in setting out what he sees in the city's future deserves an equally forthright response from the administration and on Capitol Hill. What, if anything, is Washington prepared to do about New York?