This summer, Illinois became the only U.S. state in the past 80 years to go an entire year without a full operating budget, according to Reuters. It reached that dubious milestone thanks to an epic negotiation impasse between Republican governor Bruce Rauner and the Democratic-controlled state legislature. The story of the destructive stalemate suggests lessons to negotiators facing tough choices and hoping to avoid impasse.
An agenda and a condition
As Illinois politicians approached negotiations for the 2015 budget, the state faced a $1.6 billion budget shortfall for fiscal year 2015 and a $6 billion gap between falling income-tax rates and the price of maintaining government services at 2015 levels. Meanwhile, the state’s economy was contracting at a time when most other U.S. states were experiencing growth, according to an analysis by the Federal Reserve Bank of Philadelphia.
On June 25, 2015, the Illinois General Assembly passed a state budget that would have created a deficit of almost $4 billion. Rauner vetoed it and announced that he would not agree to raise taxes to balance the budget unless the legislature passed his signature “turnaround agenda,” a list of proposed business-friendly, union-weakening laws. According to Rauner, his agenda was needed to cut spending in Illinois and overhaul the state’s pension system. But Democrats, led by Michael Madigan, the longtime speaker of the Illinois House of Representatives, rejected the governor’s demands, saying they were unrelated to the budget talks.
Rauner proposed compromises on some elements of his turnaround agenda but left others in place. Democrats rejected the new package, according to the Associated Press. Meanwhile, the governor rejected a Democratic-proposed short-term budget aimed at getting the state through the month of July while talks continued.
The threat of revolt
But talks didn’t last long. For most of the next year, Rauner refused to negotiate, saying he would do so only when Democrats agreed to his turnaround agenda. The resulting impasse and lack of budget led about one million Illinoisans to lose vital services, including mental-health care and cancer screenings, and caused the layoffs of thousands of workers. The state limped through the year on court-ordered spending and stopgap appropriations.
It was only when the possibility of a second budgetless year loomed that the politicians returned to the negotiating table, frightened by the specter of “shuttered schools, lost road construction jobs, utility shutoffs at prisons, or further cuts to colleges and social service agencies,” according to the Associated Press.
Newspapers statewide called on lawmakers to compromise, and union protestors disrupted Rauner’s public events. House Republican leader Jim Durkin predicted a “public revolt” if he and his colleagues were unable to negotiate a budget agreement.
Keeping the lights on
The threat of voters’ wrath in the November elections motivated Rauner and the legislators to hammer out a temporary compromise. On June 30, Rauner approved a stopgap plan designed to keep the state government operating for six months.
Under the deal, lawmakers agreed to spend $25 billion in state and federal funds for the current budget year and another $50 billion for the next fiscal year. Schools will receive $11 billion to stay open for a full year. In addition, in a concession to Democratic lawmakers, Rauner agreed to allow the City of Chicago to raise property taxes to help ease its teacher-pension burden.
The Chicago Tribune, whose editorial board supports Rauner’s turnaround agenda, called the deal a “duck-and-cover” for Illinois politicians. “Only in Illinois’ bizarre universe of astonishing political ineptitude does this budget vote qualify as an achievement,” wrote the Tribune’s editorial board.
The partial spending plan sets up a ferocious election season as both parties try to gain the General Assembly seats they need to influence January 2017 budget discussions, when funding from the temporary measure begins running out. Rauner said the election would “largely determine” whether he’d be able to push through his agenda.
3 keys to avoiding a protracted impasse
The Illinois budget crisis has many causes, and observers loyal to each side tend to assign blame differently. Here we describe three errors that are common in contentious negotiations where trust is low and propose ways to avoid them.
1. Adopt a gain frame
A key element of the off-and-on budget negotiations in Springfield, Illinois, was that they involved making difficult decisions about scarce resources.
Negative events (such as losses) tend to affect us much more strongly than positive events (such as gains) of similar magnitude, psychologists Amos Tversky and Daniel Kahneman found in their research. Consequently, negotiations over costs and losses, such as mortgage foreclosure, a job termination, or a budget shortfall, are generally more competitive and challenging than those involving benefits and assets, such as a home purchase, a new job, or a budget surplus. In one study, professors Margaret Neale of Stanford University and Harris Sondak of the University of Utah found that negotiators are less capable of making value-creating tradeoffs when allocating burdens, such as financial losses, than when allocating benefits.
How can you avoid approaching negotiations over losses with a rigid attitude? Try to identify any benefits that may accompany the burdens you anticipate, recommend Sondak and Columbia Business School professor Adam D. Galinsky. In one study, negotiators who were led to view transactions in terms of a net profit were more open to compromise than were negotiators led to view identical transactions in terms of a net loss, Neale, Harvard Business School professor Max H. Bazerman, and the late Thomas Magliozzi found in their research. Those who focused on gains achieved greater overall profits than those who focused on losses.
So look for the silver lining, and encourage your counterpart to do the same. A tighter operating budget offers opportunities to exercise greater fiscal restraint. Partners who are dissolving their business relationship can also focus on building a lasting friendship. Reframing losses as gains can help negotiators become more open to making concessions and working together.
2. Think multiple steps ahead
The yearlong impasse over the Illinois budget was triggered by two strong positions taken during the negotiations: (1) Governor Rauner’s insistence that Democrats accept his turnaround agenda as a condition for doing a deal, and (2) the Democrats’ refusal to accept any component of Rauner’s agenda.
A condition is an “if” statement that qualifies your entry into a negotiation or acceptance of a deal, such as “I’ll agree to your budget if you accept my turnaround agenda,” or “I’ll see that horror movie with you if you’ll go to this upscale restaurant with me.” When you are faced with someone’s unappealing offer or position, refusing to negotiate or compromise unless the other party meets your condition can be a savvy means of crafting a more palatable agreement, particularly when you are the more powerful party in a negotiation. As we wrote in our February cover story on deal conditions, when U.S. congressional Republicans tried to persuade him to run for the position of Speaker of the House of Representatives, a reluctant Paul Ryan required that certain conditions be met, such as having weekends free to be with his family, before agreeing to run.
But when parties’ power is more evenly balanced or when you are the weaker party in a negotiation, you need to be prepared for the possibility that the other side will refuse to meet your conditions. In the State of Illinois negotiations, Democratic lawmakers refused to accept Rauner’s turnaround agenda in return for a tax hike, even after he modified it.
Before issuing a condition, think multiple steps ahead about what could happen next. And before rejecting an offer wholesale, as Illinois Democrats did, you also need to envision possible scenarios. Firm positions and rejections can easily lead to a protracted impasse. Instead of taking a tough stance, educate your counterpart about what aspects of her offer are most palatable to you, and think about what you might ask for in return for concessions.
3. Keep talking
Over the course of a year, Illinois politicians failed to meet at the negotiating table even as the stalemate had painful repercussions for the state’s residents and reputation.
Individuals and organizations sometimes refuse to negotiate in the hope that a counterpart will back down as the costs inflicted by an impasse mount. What’s often overlooked is that impasse damages both sides. The more time passes, the deeper both parties dig in their heels. If you do manage to get back to the negotiating table, the ill will that accumulated during the impasse will make talks all the more challenging.
Negotiation is usually a much more promising means of resolving a conflict and ending an impasse than refusing to negotiate. With their six-month funding deal, Illinois lawmakers were roundly panned for doing too little, too late. But the agreement provided relief to many in Illinois and reminded voters that the two political parties are, indeed, capable of working together. When talks have reached an impasse, try building trust and goodwill by proposing that you negotiate relatively minor issues first.