Defense Secretary Robert Gates will fly away from the Pentagon today leaving behind a position that his former boss, President George W. Bush, reportedly had a hard time convincing anyone to take. Taking the reins from his controversial predecessor Donald Rumsfeld to steer the Defense Department through two wars, two presidents from different parties and the post-September 11 military buildup was certainly tough. Yet Leon Panetta, who will take Gates’ place tomorrow, may have an even tougher road before him.

The US Defense Department is the largest military agency—and probably the largest federal bureaucracy—in the world. Panetta will take the helm of an organization that purchases more than one billion dollars in goods and services each day and employs some 3 million people globally, yet still cannot pass an audit. And all this in the midst of a fiscal crisis that is shifting the ground beneath both the US and its allies.

Accomplishing this requires not just a good manager, but a reformer. Gates leaves behind a reputation as a budget hawk, but that claim proves a bit thin when held up to the light. On the high side, he did wage hand-to-hand battles with Congress over the F-22 raptor aircraft and the Joint Strike Fighter alternate engine, convincing the Obama administration to back him up with veto threats if lawmakers defied him by putting funds for the programs in spending bills. But the topline numbers of those bills tell a different story: DOD’s budget rose by more than 20 percent during Gates’ tenure and is set to continue growing while those of other federal agencies face cuts. The $330 billion in savings Gates touts as falling before his budgetary axe are due mostly to weapons already targeted for termination and “efficiency” reforms that aren’t likely to materialize at their projected rate.

Enter Panetta. As a former Congressman, including a stint as Chairman of the Budget Committee, director of the Office of Management and Budget and later Chief of Staff under President Clinton, Panetta is a battle-scarred bureaucrat with budgetary street cred. He was reportedly the first choice of Gates, who steeled him for the job by reminding him that DOD’s health spending was equal to the entire CIA budget that both Gates and Panetta have overseen.

But will Panetta have the mettle to impose real discipline in The Building? Defense Secretaries often come into office vowing to tame Pentagon bureaucracy, and the current political environment would seem to offer support. Republicans involved in current deficit reduction negotiations are increasingly willing to concede defense budget reductions rather than tax hikes, according to news reports. And President Obama has pledged to trim an additional $400 billion from the Pentagon’s topline, though it will fall to Panetta to provide clarity on those cuts—and enforce them. (We have a trillion dollars worth of ideas on where to cut in case he needs any help.)

Pushback from the defense industry, military service chiefs and parochially-driven members of Congress will be fierce. But postponing reform until after the elections or scheduling change for the outer limits of DOD’s outyear budget plans won’t do in these tenuous financial times.

The Government Accountability Office released a presentation yesterday saying “In this fiscal environment, DOD cannot afford to miss opportunities to address inefficiencies in its key business areas as well as across the Department.” We hope Mr.Panetta stays true to his confirmation hearing pledge to seize those opportunities and cut the fat that is still plentiful in the Pentagon’s budget. If he does not, he may just go down in the history books as Defense Secretary “Pancetta” Panetta.

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TCS Quote of the Week:

“Democrats and Republicans don't have to look hard to find common ground—we only have to be willing to admit it when we see it.”

– Senate Majority Leader Harry Reid said after conferring with the president on tackling the debt. The Wall Street Journal