The Vog Of Budgetary War

Larry Price
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Wednesday - July 15, 2009
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There’s a new kind of vog blanketing the state of Hawaii, and it just got worse.

As if the budget situation wasn’t bad enough, with a projected $730 million shortfall, the state Department of Taxation announced July 8 that its final tax revenue for fiscal year 2009, which ended June 30, showed general fund revenue collections decreased by $438.1 million, or 9.4 percent, compared to fiscal year 2008. Also this past fiscal year, declared estimated taxes dropped to $262.5 million, a 39 percent fall from last fiscal year. This means Hawaii residents are projecting their current and future incomes to be significantly less.

Those should be shocking numbers to just about everyone - but evidently not the right people.

By the middle of last week there were no new talks scheduled after the administration’s chief negotiator walked out of a meeting with four state employee unions. The United Public Workers, one of the four unions involved, filed a complaint with the Hawaii Labor Relations Board claiming that the administration was refusing to bargain in good faith. The chief negotiator for the state said, “There is no state law obligating the administration to simply sit down and listen to off-the-record, nonbinding statements by the unions.”


On the surface, this all looks silly. But it’s not. The Lingle administration wants the unions to make concessions to help close the state’s projected budget deficit that is growing larger every month. But the unions want the state to instead raise taxes or raid the Hurricane Fund to deal the the budget shortfall.

It’s very serious business.

What the public is being treated to is a classic example of distributive bargaining run amock. The basic element of a distributive bargaining situations is a competitive, or win-lose, negotiation. In this situation, the goals of one party are usually in fundamental and direct conflict with the goals of the other. Resources are fixed and limited, and both parties want to maximize their share of the “pie.”

As a result, what we now see in the process is each party will use a set of strategies to maximize its share of the outcome. More specifically, an important strategy in the win-lose scenario is guard information carefully - one party will give information to the other party only when it provides a strategic advantage.

Simply put, distributive bargaining is a competition for who is going to get the most of a limited resource - which is most often money.

Most seasoned negotiators agree that distributive bargaining is old-fashioned, needlessly confrontational and destructive in the long run. A word of caution: Most people who don’t know how to negotiate nearly always use distributive bargaining strategies and tactics almost exclusively. That’s why it’s necessary for the taxpayers to understand what’s going on. A major point worthy of mention is that distributive-bargaining strategies and tactics are quite useful when a negotiator wants to maximize the value obtained in a single deal, when the relationship with the other party is not important, and when they are at the claiming-value stage of the negotiations.

In our present situation, the taxpayers of Hawaii seem to be witnessing the beginning of a torrid 2010 gubernatorial election.

Negotiations are supposed to have deadlines. Extending negotiations beyond a deadline can be costly, particularly to the one on deadline, because that party has to either extend the deadline or go home empty-handed. There is strong and convincing evidence that a large number of distributive bargaining encounters are reached when the deadline is near, and also can reduce the demands of the other party.

We should all realize that the ultimate weapon in negotiations is to threaten to terminate them, denying both parties the possibility of a settlement. The major weapon being employed now is manipulating the scheduling of the negotiation. In fact, the administration is probably hoping the news released by the Department of Taxation would shock the negotiators into a quick settlement.

In this case, distributive bargainers who understand the process will take a new position real soon. If it is presented right, one or both parties will either change their position or change their bargaining behavior, or both.

If they don’t, then we can expect to be stuck in this budgetary vog for another week or two.

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