The Penny Pincher In Chief

By MICHAEL WEISSKOPF/WASHINGTON

How tight is George W. Bush's choice for director of the Office of Management and Budget? Mitch Daniels sold off wedding gifts he couldn't return, made a job applicant split the bill for a lunch interview and years ago fished coins from a tavern toilet to pay for a pitcher of beer. Even as a millionaire drug-company executive, he buys suits off the rack and golfs at the Indianapolis, Ind., club with the lowest dues.

Frugality is certainly a virtue for the nation's chief bookkeeper, especially when he's working for a President who wants to give taxpayers a big break. In Daniels, 51, Bush also has a proven political operator to approach a wary and bifurcated Congress. A longtime aide to G.O.P. Senator Richard Lugar, Daniels worked closely with Democrats in the 1970s bailout of Chrysler and New York City. As Ronald Reagan's political director in the 1980s, he salved the egos of Governors and lawmakers. And as senior vice president at Eli Lilly & Co., he transformed the old-line corporate culture amid rapid changes in health-care services, helping fuel a fourfold rise in Lilly's stock. "He builds consensus around the things that aren't peoples' first choice," says Randy Tobias, the firm's chairman emeritus.

Daniels lacks the technical background of many OMB directors. As the man responsible for preparing Bush's first budget, due in February, he will be introduced to thousands of government programs to determine which ones to cut and which ones to enlarge. "It's tough on-the-job training," said Leon Panetta, Bill Clinton's first OMB director. Even Panetta, who chaired the House Budget Committee, learned the hard way that small decisions can make big enemies. His 1993 spending program passed by a single Democratic vote in the House, and in the Senate he alienated his party's powerful Appropriations chairman, Robert Byrd, by tossing out highway programs Byrd had slipped into past bills.

Daniels could come under scrutiny if Bush makes good on his campaign promise of a Medicare drug benefit. Eli Lilly has a big stake in making sure it doesn't become an entitlement, which could lead to government price controls. So the issue is a potential conflict of interest for Daniels if he should have stock in the company or plans to return to it. "We'd look for assurances from him that he would not simply represent interests of the pharmaceutical industry," said John Rother of the AARP.

Appearances have always been important to Daniels. In Reagan's White House, he quietly urged chief of staff Donald Regan to step down because the Iran-contra scandal was on his watch. (Regan stayed, and Daniels left.) Fresh out of Princeton in 1971, Daniels went to work for Lugar, then Indianapolis' mayor. One of his first tasks was arranging a photo op of Lugar filling in a big pothole on a busy downtown street. Arriving early, Daniels discovered that the hole had already been patched. He quickly redug it before the cameras got there. "He understands how images move the body politic," said Mark Lubbers, an old Indiana political pal. Now the question is whether Daniels can shape his numbers into a politically palatable picture.

--By Michael Weisskopf/Washington