An eight-term congressman from California, he joined the Clinton administration in 1993 as budget director and became White House Chief of Staff the following year. He left after Clinton's reelection in 1996. Interview conducted June, 2000 by Chris Bury What was your first impression of then-Governor Clinton during the transition? My real first experience with him was when he interviewed me for director of the Office of Management and Budget. I remember going down to Arkansas and into the governor's mansion. He came in and immediately dove into budget issues. He wanted me to talk about the budget process, how he would get his budget through. He talked about deficits. And it was clear to me that this was someone who was extremely bright and able to kind of grab the nuances that oftentimes a lot of congressmen can't grab in terms of the budget process. So my first impressions were: extremely bright, a good listener, and seemed very committed to trying to get something done. During the transition, there is immediately an argument within the transition team about what ought to be addressed first. There's a group of deficit hawks, and there's a group of people who feel strongly about campaign promises that have to be fulfilled. What was the atmosphere like at that point during the transition? The best thing I had going for me was that I was a deficit hawk who had worked on the budget, and had said to the president, "Look, if you don't control the deficit issue, you're simply not going to have the resources to commit to your priorities. The two go hand in hand. It isn't a question of either-or. It's a question of whether or not you're going to confront the deficit issue in order that you then have the resources to deal with education and health care, and the other things that you're interested in." There was an ongoing debate, mainly because dealing with budgets is never easy. I've never found it to be easy, because you have to cut programs. You got to cut spending. You got to raise taxes. And a lot of people were concerned about the politics of the combination of the two, obviously. It's much easier to turn to priorities than deal with deficit reduction. . . . I think the president understood that his first obligation as president is to present a budget to the country. And so it was pretty clear that his first priority was going to have to be to confront the budget issue, and he understood that and accepted that. Some of the political people have said that they felt at that moment a sense of betrayal -- that the newly elected president was caving in to the old hands of Washington and ignoring the promises he made to the people to put people first. With a lot of people who had fought in the campaign, when you talk about deficits, their eyes went blank, because they never thought of controlling the deficit as a sexy political issue; whereas when you're talking about education or health care, that's a lot more meaningful to them and to the American people. So it took a lot of work to try to convince them that the nature of the way a president and Washington work is that a new president's first obligation is to present a budget. And he can't go in and say, "Well, I'm going to ignore everything I said about the deficit." Don't forget, this president had also said to the country that he was interested in controlling the deficit, reducing it, and moving to a balanced budget. That had become a big campaign issue because of Perot. . . . You now have to consolidate the promises you made during the campaign to a lot of people into policy, and you can't make policy work unless you deal with the budget. Budget is not just about numbers. And I kept telling a lot of the consultants, "Look, budgets are not about numbers. They are about priorities, and ultimately what you do in a budget tells the country an awful about what this president is really about." Part of the problem, though, to reach the deficit targets that you were getting is that it became clear some kind of a tax increase would be necessary when this governor had been promising, as a centerpiece, a middle-class tax cut. Was that the hardest part to reconcile? Clinton outlines the detalis of his economic plan. (2/17/93) It was. I can remember sitting down with George Bush when he became president. He had asked a group of us to come up. And he said, "Well, what do you think about the budget?" And then I told him exactly the same thing I told Bill Clinton four years later, which is, "You have got to confront this issue. And if you don't, you're going to be lost." And, at the time, Bush had said, "Read my lips. No more taxes." . . . So when I went into the Clinton administration, we realized that the president had also committed to some kind of middle-income tax relief. But it was also clear that, if you're going to confront $300 billion annual deficits, that it's going to take a combination of both spending restraints, as well as revenue increases. That's always been the case. People have gone into contortions trying to figure out how could they avoid those kinds of tough choices, but that's where the choices were. The president, to his credit, was willing to confront that. And in the back of his mind, I think he always said, "If I can do this first, if I can get this budget in control, then there will be a time when I can fulfill my promise for a middle-income tax cut." When you and others of the economic team told him, "Look, you've got to reach this number," and Greenspan is adamant about this, did he feel at that moment a little bit out of control? He worried most about the political damage that would result from having to make some pretty tough choices on spending cuts. After all, we were talking about saving money in Medicare and Medicaid, in agriculture, in transportation. All of those areas impact on people and impact on constituencies. And if we're going to raise taxes, clearly he knew there would be some heat that would come from raising taxes. So I think the president's biggest concern was, "What's the political fallout of this, and how long is it going to take once we take this tough step? How long is it going to take for the economy to respond to that so that I can, as president, reap some benefits from the tough choices that we're going to have to make?" So I think his greatest concern was not so much whether or not it had to be done -- I think he accepted that fact. His biggest worry was, what price are Democrats going to pay for doing this? How did he handle the fact that he had these factions at odds? He had this political team that had gotten him the election, and he had the veterans like you and Bentsen, and they were kind of at war. How did the president deal with that? The president is someone who really loves to get the best information from the best minds that he can get ahold of. I have never seen him intimidated by an in-depth discussion about issues. He loves that. And I think he relished the fact that this debate was going on, and that very strong views were being presented. He never said, "Cool it. I don't want to hear it." He always was intense, he was interested. He wanted to hear the discussions, because I think in the president's own mind, he constantly was testing exactly, "How far can I go? What can I do?" But he was also smart enough to understand that, when he looked at some of the veterans he said, "These guys have been around a while, and they've seen these wars." And he recognized the fact that it wasn't Arkansas, that it wasn't just a question as a governor of a small state working with that kind of budget. He recognized the differences, and that's why I think he put a tremendous amount of trust in his economic team, which ultimately made the difference in terms of the final product. You say the president-elect respected the Washington insiders. At the same time, there was enormous criticism that the transition was a disaster in terms of personnel choices, in terms of sending mixed messages. One of the main criticisms from people like David Gergen is they weren't grownups. Going back over the Clinton administration, there's the good and there's the bad. That was true even for the transition. The president, to his credit, took an awful lot of time selecting his cabinet, because he wanted to get some very good people as part of his cabinet team. So the whole concentration was on the cabinet selections, and a process that was supposed to take, originally, about a month, started to drag into January. And it was because the president really was focusing on trying to make sure that he had good people, that it reflected a cross-section of the United States, that they were people that he could work with, felt comfortable with, respected. To his credit, his cabinet selections were outstanding. Even though he ran into a few bumps at the beginning, the reality is -- at least from my perspective as director of the Office of Management and Budget -- that I have never seen that good a team come together and really work as a team supporting the president... You suggest that the focus on choosing a cabinet came at some kind of a price? The price paid for taking all of the time to focus on the cabinet selections was that they didn't take the time to focus on the staffing of the White House. Maybe, in part, they thought that that was just easier. They thought about the experience in Arkansas and the fact that, if you get a few key staff people, you don't have to spend an awful lot of time working on staff in the White House. And so suddenly January 20 comes, and this is the inauguration, the President of the United States is now taking office. And I think they suddenly asked, "What are we going to do for staffing?" So what they did was they turned to a lot of people from the campaign to fill those spots, which is a natural instinct. Any time you run a race, you always try to reward the people who have worked for you in the campaign. But the problem is, as President of the United States, you're talking about positions that have huge responsibility in the White House, that demand some experience in Washington, that demand some experience with the constituencies that you're dealing with. And there were just an awful lot of people who didn't have that. Part of the problem is they just never focused on staffing with experience, and they also did not focus on any kind of structure to insure that there would be discipline within the White House operation itself. In that first couple of weeks, the administration ran into trouble on the Zoe Baird nomination, and then there was the huge hue and cry that developed over gays in the military. Do you consider those to be examples of missteps on the part of the staff? Anyone with an ounce of experience in Washington knew that you certainly don't want to take on the gays in the military issue as one of the first ones after going into office. You're trying to lead with your best foot forward. You try to deal with the budget issue and get that in place, your economic plan -- that's what the country cares about. That's not to say that you shouldn't deal with the issue of gays in the military, but obviously, it's one that demanded a lot of work, both with the Congress as well as with the military. To have that suddenly kick off as one of the first issues was what tends to happen in the White House and in Washington. If you allow a vacuum to be created in which you're not delivering your message, a positive message, then into that vacuum will come some very controversial issues that then will dominate your agenda. I think that's the lesson that they learned in that first instance, in the failure to have some continuing messages that they were going to deliver as a new president to the United States. What happened is that both the Congress and the press made gays in the military the first issue. They suddenly found themselves with a controversy they had to confront. I think that was, in part, a problem with . . . too little experience in the White House. You by then had been director of the Budget Office, you had been a veteran Democratic congressman, you had extensive contacts on the Hill. In those first few weeks, how was this administration going over, even among Democrats on the Hill? Members of Congress, by their very nature, are a nervous group. They tend to react to almost every headline. They get nervous about whether or not there's a clear, organized focus that will not only help the president, but will certainly help the Democrats. I think their initial reaction early on was that there's some chaos here, and that made them very nervous. How was the president dealing with this? He has some plans for the transition, and bingo, every headline is Zoe Baird, and then, for days on end, it's gays in the military. One of the convenient things that was going for me as director of OMB is that, contrary to being chief of staff, I didn't have to deal with a lot of those other issues. But we were in the process of trying to resolve the budget issues. It was pretty clear at the time, as we were trying to pull together the economic plan, that the president was clearly being distracted by these other controversies. That concerned me from the point of view of, is his focus really there in terms of wrapping up these final budget issues? He is very good at compartmentalizing. He is very good at walking into a room and then focusing on the issues that are there. But you can also sense that he was bothered, because this is not what he wanted. What Bill Clinton wanted from the very beginning is to continue to have that kind of large support that he had in the election and build on it, because that's his nature. He is a person who wants to succeed in everything, and I think it was disturbing to him that these kinds of controversies were beginning to hold him back, and they were bothersome. It was kind of a rude awakening to what Washington was all about, in the sense that Washington wasn't responding to his agenda; Washington was creating its own agenda. Again, that's the nature of that town . . . It isn't like Arkansas, where you can pretty much set the agenda, work with the press. There are a few writers there. You can walk onto the floor of the legislature and lobby yourself for the issues that you want. It's a different ballgame. They understood it was a different ballgame, but at the same time, they resented the fact that a young president was not enjoying the kind of broad support that they thought they could have, the kind of honeymoon that they thought they could have from going into office. I think they really thought that, like the Kennedys, they would immediately be able to get an awful lot of support from an awful lot of people without having to work it. And in Washington you've got to work it. If you don't, you're going to get killed. In April of 1993, the White House is in some disarray, and you have an on-the-record meeting with a group of reporters. And the next day, the headline of the Washington Post is: "Panetta: President in Trouble on Hill, Agenda at Risk, Trade Pact Dead." How did that go over with the new president? In the time that I've been in politics -- over 25 years at that point -- I had always maintained a very honest relationship with the press. And I'm not a very good spinner. I'm basically somebody that says what I feel. And what happened was I met with a group of reporters, and we had a conversation about a number of issues. And then one of the reporters said, "What do you think is going to happen with NAFTA?" And I gave him an honest answer. I said, "At this point, if the vote were held tomorrow, we'd probably lose it," which I think was accurate. So that made the headlines. And I got up that morning, looked at the Washington Post, and I said, "Oh, man. Well, welcome to . . " Frankly, for me having been in Washington for as long as I had, it was not that much of a surprise. But I called the president. I apologized for the fact that that was the headline, but that it was the answer I gave, that I thought we were in trouble and that a lot of work had to be done, particularly on the NAFTA issue. That's what the focus was. And he said he didn't disagree with that, but that in the future, he hoped I could be a little more positive about what would happen. So it worked out well, and actually, I respected him a lot more for at least being understanding. Was he angry at you? Not really. . . . He puts himself in your position and knows that there are times when the press will play up certain statements, so he understood that. At the same time, I think he is, by nature, a positive person who believes that he can cut a deal with anybody, any time, anywhere, any place, and that he can get it done. And I think he, himself, did not believe that he was in as much trouble with the Hill as I did. In that summer when you're putting together the first budget, what was Mrs. Clinton's role? In the first meetings that we had beginning in Arkansas, Mrs. Clinton was there. She listened and was attentive and made comments, just like anybody else at that table. As time went on and we continued to meet on the specific line items of the budget, working through every piece, every agency and department, sometimes she'd be there, sometimes not, and more often not. So gradually her participation in those meetings became less and less. But you always knew that if it was something like health care, or an issue like children that she cared about, she would always make her views known. How was her presence felt in the West Wing? This is the first time a First Lady has her own office. Her own chief of staff moves into the West Wing. How was her presence felt among senior people, such as yourself? Clearly . . . she was a presence and it wasn't just obviously as the first lady attending events. She was very much involved on issues. She was very much involved in advising the president. She was very much a player on both political, as well as substantive issues. She was there, she was present. She's bright. She's able. She's capable. And so all of those factors were at play. As a matter of fact, when I became chief of staff, I made it a point once a week to brief her on what was going on, because she clearly was interested and involved in what the president was doing.