To new president: It's worse than you thought

Andrew Ross poses for a portrait in San Francisco, Calif. on Tuesday Sept. 16, 2008 Andrew Ross poses for a portrait in San Francisco, Calif. on Tuesday Sept. 16, 2008 Photo: Katy Raddatz, The Chronicle Photo: Katy Raddatz, The Chronicle Image 1 of / 1 Caption Close To new president: It's worse than you thought 1 / 1 Back to Gallery

To the next president: It's worse than you thought

So, a new president walks into the Oval Office, facing a trillion-dollar deficit, a severe recession and a long list of promises he made to an expectant electorate.

"The first thing I'd tell him is, 'The problems you are confronting are far worse than you expected,' " said Leon Panetta, with a laugh.

The former White House chief of staff and head of the Office of Management and Budget said the same thing to Bill Clinton in 1992. "It was a shock. He knew immediately there were things he couldn't get done."

In addition to a stimulus package to get the economic wheels clanking, "we've still got two wars to pay for and hundreds of billions of dollars committed to unfreezing credit," said Panetta, who now heads the Panetta Institute in Monterey.

"And since we've opened the door to bailing out the private sector," he adds, "the president is going to have to know when to say 'no' to everyone else lining up for a handout - the auto industry, state and local governments, the airlines."

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A pause for a chuckle at the enormity of it all.

What to do? Priority No. 1: "A five-year budget that sets the country on a course to fiscal discipline, that shows the country we're on the right path."

That means back-burnering most of the initiatives the winning candidate campaigned on.

Which doesn't mean the new president has to take his eyes off the prize. It does mean that he will have to rigorously prioritize.

One major investment program Panetta recommends sticking with: alternative energy.

And how will the electorate respond to this lowering of expectations? "We all know the game. Everybody promises everything to everybody. But deep down, people understand there is no free lunch."