It is dangerously misleading to believe that Oregon has a balanced budget. The budget is balanced only in a cash-flow sense: the government is able to pay its short-term obligations. Do you remember the changes made a decade ago to reduce long-term Public Employee Retirement System obligations? Those changes were needed despite Oregon's balanced budgets — and thanks to the recession, PERS once again has billions of dollars of unfunded liabilities. As of 2016, the unfunded liabilities have reached $22 billion! Attempting to fund that shortfall is putting huge strain on the budget.
How could this happen twice in two decades, after it was supposedly fixed?
The incentives of politicians are not aligned with those of residents. Residents are planning for their whole lives, but politicians are naturally focused on just the time until the next election. If politicians can make a promise today that gets them reelected, but which causes financial disaster in twenty years, well, they can retire and let their successors deal with it.
A balanced budget is a tool for managing an organization's short-term finances, but it is not sufficient for long-term planning. Accounting in large businesses is done on an accrual basis, recognizing that decisions and commitments made today will have an impact on revenues and expenses in the future. This long-term focus is what is largely missing from government budgeting. Government accounting ought to be done on the basis of Generally Accepted Accounting Principles (GAAP) and the state ought to produce standard financial statements: a balance sheet, income statement, and a cash flow statement (nearest to the current budget). Impact statements of proposed legislation should be focused on the long term — not just the next several years — and estimate the future impact to all the financial statements, not just to cash flow. In short, government accounting should work like business accounting.
Long-term cost estimates would reduce the ability of politicians to get away with making fiscally irresponsible campaign promises. Even knowing that there is a large uncertainty over the long-term cost of a program will be a powerful force for fiscal restraint.
In general, the government's ability to accept long-term liabilities should be limited. We must recognize that long-term liabilities of the government become a burden to be paid by the young and by the unborn. In a system of representative government, this amounts to taxation without representation, which is morally repugnant. It is wrong to force our liabilities onto our children and to bind them to long-term contracts when they had no voice to object.
What we must learn from PERS is that government is a poor negotiator of pension programs. In the hands of a private institution, benefits would not have been so generous, and even if it still failed, taxpayers would not have been on the hook. We should spin off pension administration to insurance companies, unions, or other private groups, and guarantee that there is no bailout from the taxpayers. If that means the plan must be defined-contribution instead of defined-benefit, so be it.