Panetta Named Chief of Staff in Major White House Shake-Up : Presidency: Clinton's friend McLarty will step aside and become the counselor to the President. Gergen will move to State Dept. and Rivlin will be budget director in effort to add 'strength, vitality.'

By JACK NELSON

June 28, 1994 12 AM PT

TIMES WASHINGTON BUREAU CHIEF

WASHINGTON —

President Clinton appointed Budget Director Leon E. Panetta as his new chief of staff Monday in a major shake-up aimed at strengthening a beleaguered White House as it enters the climactic struggle over what the President called his “daunting agenda”--including health care reform, crime and trade.

Panetta, an outspoken Washington insider and former California congressman, replaces Clinton boyhood friend Thomas (Mack) McLarty, a mild-mannered, soft-spoken Arkansan who has been widely criticized as too “nice” and inexperienced to run an often-divided White House.

Clinton named McLarty counselor to the President, a position that keeps him in the White House but without the chain-of-command responsibilities of his old job.

At the same time, David Gergen was removed from his White House communications post and named counselor to the State Department, and Panetta’s deputy, Alice Rivlin, was chosen to take over as director of the White House Office of Management and Budget.

Clinton said the moves would add “strength and vitality” to the White House, which members of Congress from both parties--as well as some Administration officials and outside experts--have criticized as unfocused, undisciplined and prone to putting out mixed signals on critical policy issues.

Democrats in Congress said they believe Panetta will move quickly to address those problems. More important, they said, as the struggle over health care and other issues enters the decisive phase, he will bring to his new job an understanding of Congress that comes from the hands-on experience of shepherding difficult measures through the legislative meat grinder.

But none of that will matter, they agreed, unless the President himself dramatically changes what they see as his undisciplined approach to decision-making and management.

On the record, the bluntest assessment of Clinton’s underlying problem came from Rep. Vic Fazio (D-West Sacramento), chairman of the Democratic Congressional Campaign Committee in charge of his party’s strategy for the 1994 midterm elections.

Clinton’s problems, said Fazio, voicing an opinion shared by many Democrats, are “the need to bring issue debates to closure,” his failure to meet deadlines for policy formulation and “the need to get out of the crisis-management mode.”

One committee chairman, speaking on condition that he not be identified, complained that he has had to go to too many meetings, involving too many people, who talk too much and with too little focus. “They were too indecisive. They never gave McLarty the authority he needed,” the lawmaker said.

He said he believes only Clinton can fix the problem. “That’s a very important point,” he said. “Until the President can improve his management style, it will be very hard for anybody to do a good job running the operation.”

Like Clinton, Panetta is a consensus builder who thrives on policy work. Whether he will be able to impose more discipline in the face of the President’s own approach to management remains to be seen. But, unlike McLarty, Panetta can be blunt-spoken and does not shrink from criticizing White House operations.

In April of last year, he stunned Clinton and his top staff by going public with a bleak assessment of the President’s congressional agenda, declaring that it was jeopardized by internal problems at the White House, including the President’s failure to determine priorities. The assessment was widely shared by Democrats in Congress, but such candor from a senior official is almost unheard of in Washington.

Panetta, who will remain at the budget office for two more weeks, indicated that he would move aggressively in taking control of White House operations. “I will want to bring in some of my own people,” he said Monday night on CNN’s “Lary King Live.”

Asked if he might replace White House Press Secretary Dee Dee Myers, he did not dispute the possibility. His two closest advisers at the budget office, both of whom he brought from his congressional staff, are Barry Toiv, his press secretary, and John Angell, his top personal aide.

Clinton, flanked by the principals as he announced the personnel changes at a brief Oval Office news conference, said McLarty had approached him more than a month ago about “better deployment” of the White House staff and had recommended that Panetta replace him as chief of staff.

The President said he, McLarty, Vice President Al Gore and several others had discussed McLarty’s recommendations.

McLarty said, however, that he and Clinton first began discussing White House staff problems several months ago. The discussions, he said, got more serious just before the President left for the June 6 D-day anniversary ceremonies in Normandy, when McLarty offered the specific suggestion that Panetta replace him and that he take on the role of counselor to the President.

McLarty then talked with Panetta, who liked the idea. After returning from Europe, Clinton gave the green light for the personnel changes, White House sources said. Panetta and Clinton met to discuss it Saturday and also conferred with Gore, who was said to have played a major role in the discussions.

Moving McLarty to the counselor’s job posed an awkward problem for the White House because Gergen had given no indication that he would relinquish the post until the end of the year, when he plans to return to private life.

But when Gergen was consulted, according to one source, he said he would be glad to leave immediately. Clinton persuaded him to remain as a foreign affairs adviser, suggesting an expanded role at the State Department, the source said.

Gore then telephoned Secretary of State Warren Christopher and told him that Gergen was leaving the White House. Christopher said he would be glad to have him as a top adviser, the source said.

Gergen, who served in three Republican administrations before joining the Clinton White House last summer, increasingly had been involved in foreign affairs. He will remain a senior foreign affairs adviser to Clinton and will have offices in both the White House and State Department.

Panetta and McLarty met with the President at the White House Sunday when it was decided to announce the changes Monday before they were leaked to the news media.

The planned moves, however, had been so closely held that the announcement caught even some of Clinton’s close advisers by surprise. “Gee, I was just on my way to a meeting Leon was supposed to be at,” said one senior Clinton aide only moments before the announcement. “I guess he’ll be late.”

McLarty, in an interview, said he will become more of a personal adviser to Clinton, much like he had been during the transition after Clinton’s election.

“The President,” he said, “had voiced the feeling that the sort of more informal, less structured time in which he had long discussions with me had not become as easy as in the past.”

In addition, he said, “we talked about the various outreach efforts I had become involved in,” most notably representing Clinton to the business community and to conservatives on Capitol Hill.

His new role is an obvious step down from chief of staff, but McLarty insisted that it has “real meaning and substance to it.”

While Panetta has “a different style,” he will “continue many of the things we’ve been doing,” McLarty said. “Particularly because this is an election year, it will be immensely helpful that he’s been an elected congressman.”

Though never elected to public office, Clinton’s new choice for the sensitive position of budget director is a seasoned Washington operator who commands respect on both sides of the aisle in Congress. Rivlin, 63, served in the Department of Health and Human Services in the Lyndon B. Johnson Administration but made her reputation as a strong and independent economic analyst as the founding director of the Congressional Budget Office.

There she tangled with powerful committee chairmen and presidents over economic policy but earned widespread respect as an economist who would not tailor her assessments to suit the political market.

Like Panetta, she is known within the Administration as a fierce “deficit hawk” who believes that controlling federal spending is a prerequisite to healthy economic growth.

Her transition to the top job at the budget office is expected to be smooth. The first woman to head the office, she has worked there for 18 months. And she is accustomed to running a sizable bureaucracy from her days on Capitol Hill.

Although rumors of White House changes have circulated in Washington for months, members of Congress were surprised. An aide to House Speaker Thomas S. Foley (D-Wash.) said the Speaker had no warning. Sen. John B. Breaux (D-La.), who had dinner with McLarty Friday night, said McLarty gave him no indication of any coming changes.

Times staff writers John M. Broder, David Lauter and Karen Tumulty contributed to this story.