Daniels brings private and public sector experience to OMB

Few Washington insiders were surprised when George W. Bush tapped Mitch Daniels to join his Administration. After all, Daniels is a Republican political veteran who has worked on Capitol Hill and for former President Reagan. What was surprising was the position that Daniels was offered: director of the Office of Management and Budget.

Daniels, 51, is known for his shrewd political skills, similar to those of Jack Lew, Franklin Raines, and Leon Panetta, all of whom served as OMB directors under President Clinton. But unlike those three men, Daniels is no budget wonk. In fact, he has no full-time job experience related to the federal budget. Making matters worse, Republican sources say that Daniels was not Bush's first choice. John Cogan, a former OMB deputy director now at the Hoover Institution on War, Revolution and Peace at Stanford University, is said to have turned the job down.

As might be expected, Daniels' nomination rang some alarm bells among budget experts, who contend that he faces a huge learning curve before he'll be able to effectively manage the complex writing and selling of the Administration's tax and spending plans. Some even wonder whether the nomination is a signal that OMB is not going to be the power center it has been in recent years, including during the previous Bush Administration.

But allies of Daniels argue that he is a quick learner whose wide experience in Congress, the White House, and the private sector makes him the perfect budget director. Supporters also suggest that Daniels' expertise could strengthen OMB's management and oversight of the federal bureaucracy, a role that many say the agency has long neglected.

For his part, Bush expressed great confidence in Daniels when he nominated him. "Mitch Daniels is a successful businessman who has an extraordinary amount of experience working within the federal government," Bush said. "He will be an important adviser within my Administration and will help ensure that our federal government maintains fiscal discipline."

And during Daniels' Senate confirmation hearing on Jan. 19, the two Senators with whom he is likely to work most closely-Budget Committee Chairman Pete V. Domenici, R-N.M., and Appropriations Committee Chairman Ted Stevens, R-Alaska-strongly endorsed the nomination. "I'm delighted that you have the experience in government that you have," Stevens told Daniels, "and I'm delighted that you have the experience in business that you have. We need both right now."

Daniels began his career in 1975 as an aide to Indianapolis' then-Mayor Richard G. Lugar. He followed Lugar to Washington when Lugar was elected to the Senate, serving as his administrative assistant from 1977-82. Daniels was executive director of the National Republican Senatorial Committee during the 1984 election cycle, and he next joined the Reagan Administration as an assistant to the President and a liaison to state and local officials. He left the Administration in 1987 after clashing with White House Chief of Staff Donald Regan over the President's handling of the Iranian arms scandal. Daniels had called on Regan to resign, saying he had become a liability to the President.

Daniels joined the Hudson Institute, an Indianapolis-based think tank, and became its president in 1987. He left the think tank in 1990 and went to work for Eli Lilly and Co., where he served until recently as senior vice president of corporate strategy and policy.

Skeptics say that although Daniels' experience is valuable to the Administration, it will not help him in the budget wars. "I'm just amazed" by Daniels' nomination, said one veteran budget expert who requested anonymity. "This was the most important appointment that the President was going to make, because he needs some legislative accomplishments. It's going to make it very hard. This stuff is complex."

A key Democrat noted that Daniels will immediately be thrust into the position of defending Bush's budget, the outlines of which will be released in February. "He's going to have to hit the ground running, because the budget is the first thing out of the box," said Thomas Kahn, Democratic staff director of the House Budget Committee. According to Republican sources, Cogan, who serves on Bush's OMB transition team, is taking the lead on that budget outline.

When he appeared before the Senate Governmental Affairs Committee for his recent confirmation hearing, Daniels said he believes his broad experience will help him as OMB director. But he also conceded, "Much about this job will be new to me, of course."

Some Administration-watchers caution that Daniels' recent stint at Eli Lilly, a pharmaceutical company, will put him in a sensitive position when the Administration crafts a prescription drug benefits plan for Medicare recipients. "It's pretty evident that the director of OMB has a major role in formulating policy and the budget, and prescription drugs is going to be a major part of it," said John Rother, director of legislation and public policy at AARP. He said he hopes Daniels can "step away" from his former job and "not be seen just as a mouthpiece for the industry in the Administration."

Daniels, who walks away from Eli Lilly with a total of more than $1 million in compensation over the next 10 years, said in a questionnaire submitted to the Senate panel that he will recuse himself from any issues directly affecting Eli Lilly. He added: "This recusal does not include matters of policy, budgeting, or regulation affecting the pharmaceutical or health sectors generally." Although skeptics and others may question Daniels' experience, former colleagues say he is more than up to the task of running OMB. "Mitch is a master of where politics and policy meet," said Curt Smith, vice president and chief operating officer of the Hudson Institute. "He can keep very many moving parts in motion and understand how they interplay."

Daniels, moreover, may be just the type of compassionate conservative Bush is looking for. Smith said that Daniels took a leading role in founding the Oaks Academy, an innovative inner-city private school in Indianapolis. "He talks education policy, but he was willing to put his own credibility and that of [Eli Lilly] behind it," Smith said. Daniels and his family have stayed active in the Tabernacle Presbyterian Church, which remained in downtown Indianapolis and worked on city projects at a time when many churches were fleeing to the suburbs, Smith added.

Another friend said that Daniels is perfect for the OMB job because of his own personal habits. "There are a lot of stories about Mitch's frugality," said Jeffrey Y. Bergner, who served on Lugar's Senate staff with Daniels and is now president of Bergner Bockorny, a Washington government relations firm. "He's very careful about money, so in many ways, this is the perfect job for him."

Bergner noted that it has become much more important for the budget director to understand Capitol Hill, since the budget process in recent years has ended with key Administration officials and members of Congress cutting a huge last-minute deal-rather than with 13 appropriations bills winning approval in an orderly manner. "The OMB director is in all of those meetings" about the budget on Capitol Hill, Bergner said, and "needs much more intensive political skills and knowledge of Congress."

But one key Republican official said that the selection of Daniels may signal a decrease in OMB's power. This source, who requested anonymity, speculated that former President Bush may have warned his son not to let OMB become an independent base of power for its director, as it was under Richard Darman in his Administration. "You have to control that office very tightly," said the Republican, who noted that the elder Bush had to distance himself from Darman at the end of the 1990 budget crisis because Darman's heavy-handed manner was drawing fire from some lawmakers.

According to this Republican, OMB will probably not be a centralized place for formulating policy in the new Bush Administration. And he expects some conflicts to flare up between longtime professional policy-makers at OMB and newer experts whom Bush has brought in. Budget experts insist that it is vital for Daniels to surround himself with budget professionals. Sources said the Administration has actively courted G. William Hoagland, staff director of the Senate Budget Committee, to be OMB's deputy director, but Hoagland has resisted those efforts. Discussing the deputy spot, one budget expert said, "In a way, it's a thankless position because you're educating the director, but you're not necessarily in a position to influence policy." Nonetheless, Daniels is expected to hire several former staffers of the Senate Budget panel.

While much of OMB's focus has been on the budget battles, Senate Governmental Affairs Chairman Fred D. Thompson, R-Tenn., suggested that Daniels must help redirect the agency's attention to improving the performance of federal agencies. "A case can be made that OMB has abdicated its management responsibilities," Thompson said at Daniels' confirmation hearing. "Budget issues have crowded out the management issues."

Daniels agreed, saying that it is unacceptable, for instance, for federal agencies to consistently miss deadlines for filing reports to Congress. He promised to improve federal oversight. "If you're not keeping score, you're just practicing," Daniels said.

But regardless of the direction in which Daniels takes OMB, he will be in uncharted territory. The new Administration and Congress face a huge budget surplus-larger than anyone would have imagined even two years ago-that they may find tempting to squander on pet programs. "We are new to the era of surpluses," Daniels told the Senate committee. "We're all going to have to get used to it."