Negotiation Update: At Last, Illinois Lawmakers Agree on a Budget

Two years of impasse finally ended in a deal, to the governor’s dismay.

By — on / Dispute Resolution

In negotiation, impasse isn’t necessarily a bad thing. If parties conclude they can’t get what they want from each other, it’s in their interest to walk away and seek out other negotiating partners.

But in negotiations in which parties have only each other to deal with, impasse can be not only inefficient but also nonsensical. That was the case for the past two years in the state of Illinois, where a Republican governor and a Democratic-led legislature stubbornly refused to come to agreement on a budget. Due to the resulting crisis, Illinois residents were denied crucial social services, state universities suffered, the state’s credit rating plummeted, and its debt mounted ever higher—all because of the parties’ inability to collaborate and compromise.

Here, we review the debacle and suggest how other “codependent” negotiators— those who must reach agreement to ensure their mutual prosperity—can avoid the Illinois politicians’ irresponsible mistakes.

Fiscal limbo

As we wrote in our October 2016 issue, the recent crisis in Illinois was rooted in a difference of opinion over how to address a $1.6 budget shortfall for fiscal year 2015. The Democrat-controlled General Assembly voted to raise taxes while accepting a deficit of almost $4 billion. The state’s new Republican governor, Bruce Rauner, vetoed the plan, saying he would not agree to a budget-balancing tax increase unless the legislature passed his “turnaround agenda,” which included pro-business, union-weakening laws aimed at cutting spending.

With the parties unable to see eye to eye, the budget remained unresolved—for more than two years. Because of laws and court orders, the state continued to pay many of its bills, according to the Chicago Tribune. Most state workers kept their jobs, and schools and state offices remained open. But social-service agencies and state universities were dealt punishing budget cuts, and families lived under the threat of shuttered public schools. The result was the longest budget impasse in modern U.S. history and a $15 billion mountain of debt.

The final countdown

As the start of a new fiscal year on July 1, 2017, loomed, Illinois lawmakers found themselves peering into an abyss. Without a deal, credit-rating agencies warned that the state could become the first ever to be downgraded to “junk” status. The politicians in Springfield had worked hard to keep the budget impasse from directly affecting middle-class voters, but if they didn’t reach a deal this time, that would change. Public schools might not open in the fall. Construction projects and the state lottery were put on hold.

In late June, Democrats in the Illinois House reached a new budget plan that combined elements from two separate deals produced by the State Senate, one by Republicans and one by Democrats. The plan called for spending to be reduced by $3 billion and income taxes to rise by $5 billion, from 3.75% to 4.95% for individual taxpayers, just under the 5% tax rate in place in Illinois from 2011 to 2014.

In the Illinois House, 15 Republicans— some reportedly in tears—broke from Governor Rauner to vote in favor of the bill, as did one Republican in the Senate. When the bill passed and reached his desk, Rauner vetoed it. But both houses of the legislature had enough votes to override the veto. As of July 6, Illinois finally had a budget.

Rauner lashed out, calling the deal “not just a slap in the face . . . but a two-by- four smacked across the forehead of the people of Illinois.” According to the governor, the tax hike would only “make our problems worse.”

A slew of costly mistakes

Three well-documented decision-making biases (among others) might have prevented Illinois leaders from making wise decisions on behalf of their constituents during the impasse:

Overoptimism. When the budget crisis ended, Rauner had achieved none of the lofty goals of his turnaround agenda. It’s common for negotiators to set overly ambitious goals and to be excessively optimistic about their ability to achieve them, researchers have found. Rather than trying to ram through their agenda, wise negotiators develop ambitious but realistic goals that give the other party incentives to cooperate. They also think through in advance the various ways in which their planned conditions, ultimatums, and threats might fail.

A win-lose mindset. When negotiators have strong ideological differences, they tend to adopt a win-lose attitude, assuming that their gains come at the other party’s expense. In such a competitive atmosphere, negotiators become determined to “win” and refuse to admit “defeat.” But when multiple issues are on the table, as they were in the Illinois budget negotiations, there are almost always opportunities for parties to make tradeoffs across issues. Exploring the interests underlying parties’ stated positions can also lead to breakthroughs.

Escalation of commitment. Negotiators often fail to anticipate the consequences of a long-running impasse with a party with whom they need to reach agreement. Unfortunately, the longer an impasse lasts, the deeper they dig in their heels. The best negotiators recognize that past investments of time and resources are sunk costs that cannot be recouped. In doing so, they open up to the idea of working constructively with the other party.

The Program on Negotiation at Harvard Law School
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