William Daley is stepping down as White House chief of staff and budget director Jack Lew is taking over the President Obama’s team as it heads into a tough election year, senior administration officials say.

Daley gave his letter of resignation to the president in a private meeting in the Oval Office last week, recounting the administration’s successes of his one year on the job and saying it was time for him to return to his hometown of Chicago.

President Obama made the news official this afternoon in a brief appearance in the state dining room of the White House, where he told reporters in somber tones that he is sorry to see Daley leave.

“There’s no question I will deeply miss having Bill at my side here at the White House,” Obama said. “But Chicago is only a phone call away.”


After accepting Daley’s resignation last week, the president said, he asked for advice on a replacement.

“He told me there was one clear choice,” Obama said, “and I believe he’s right.”

Lew was the first and only choice for the job, aides to the president say.

The official shift will take place at the end of the month, giving Lew time to complete the administration’s budget proposal while Daley leads the team through the crafting of the State of the Union address due in two weeks.

The choice of Lew puts a veteran staffer of the White House, Capitol Hill and State Department in a critical position at a difficult time for the president. Obama hopes he can work through tough budget and economic issues with Congress this year despite fierce opposition from Republicans in the GOP-led House. Having a strong team captain who can deal with lawmakers, staffers and business leaders is considered crucial to their strategy.


But aides say Obama had faith in Daley to lead that effort, and that he had not been discussing making any changes prior to last week. Daley’s letter took the president by surprise, said three officials familiar with the personnel discussions that followed. They requested anonymity to speak about the internal talks in advance of the public announcement.

In October, Daley told Chicago reporters that he was looking forward to returning to his hometown but that he would serve the president through the duration of the reelection campaign. It had been a grueling year for Obama that included a summer of fighting with Republicans over the debt ceiling and related budget issues.

In November, Obama directed a change in the flow chart at the White House, keeping Daley in charge but shifting many of the day-to-day operational duties to Pete Rouse, a trusted aide who had served as interim chief of staff. Friends said Daley would focus on high-level managerial duties and be advisor and surrogate for the president.

After winning an end-of-year victory in the extension of the payroll tax cut, Daley went to Mexico and to Chicago to celebrate Christmas and spend time with his wife and grandchildren. When he came back, he told Obama right away that he had decided to leave.


“I have been honored to be a small part of your administration,” Daley said in a letter to the president, dated Jan. 3 and obtained by the Los Angeles Times/Tribune bureau in Washington. “It is time for me to go back to the city I love.”

During that meeting last Tuesday the president asked Daley to take 24 hours to think it over. Daley returned the next day to make it official.

In the Wednesday conversation, the officials said, Daley suggested to Obama that Lew be appointed as his replacement.

Lew served as budget director under President Clinton, and as deputy director of the Department of State under Hillary Rodham Clinton before taking the budget job in the current administration.


He has extensive experience on Capitol Hill, where he was a senior policy advisor to the late Speaker Tip O’Neill.

[Updated 12:24]: This post has been updated to include comments made by President Obama, who announced the leadership change Monday afternoon.

christi.parsons@latimes.com