White House aides told the Associated Press that the resignation paves the way for Daniels to make an expected announcement that he will run for governor of Indiana.
Daniels' departure will leave a leadership gap at the top of OMB. The agency's deputy director, Mark Everson, left his post recently when he was confirmed by the Senate as the new director of the Internal Revenue Service. President Bush has named White House presidential personnel director Clay Johnson to replace Everson, but Johnson has not been confirmed by the Senate yet.
Johnson's name has been floated as a potential OMB director, but White House press secretary Ari Fleischer said Tuesday that it was "too soon to speculate about successors" to Daniels. Fleischer called Daniels a "very strong manager and a very able leader."
"It certainly bodes well for Clay Johnson," said Paul Light, director of the Brookings Institution's Center for Public Service. "His move over to OMB from the White House was a positive for the president's management agenda. It's always good to have a deputy director of management who knows the president on a first name basis," Light added.
Daniels was the driving force behind the effort to implement the management agenda, which consists of a series of initiatives in five areas: human capital management, competitive sourcing, financial management, electronic government and linking performance to budgets. OMB devised a "traffic light" grading system-green for success, yellow for mixed results and red for unsatisfactory-to grade agencies' progress in implementing the agenda.
"He transformed OMB by going straight to the budget examiners and laying out a clear vision and policy of how they should incorporate management into agency budgets, and then he very aggressively held them to task," said Carl DeMaio, president of the Performance Institute, a think tank that studies performance-based management in government agencies.
Daniels drew both praise and criticism for the management reform crusade, especially with respect to the competitive sourcing initiative, in which 425,000 federal jobs are slated to be put up for competition with private firms.
"We never call it outsourcing," Daniels told National Journal in an interview earlier this year. "It's competitive sourcing. And we are quite sincerely indifferent to who wins. We just think that where there is competition, the taxpayer inevitably wins. Frankly, to me, it's a great story when an incumbent group of government employees reshapes and reorganizes and finds a better way, and wins one of those competitions."
Daniels was also an outspoken critic of agencies' performance evaluation efforts, especially ratings of senior executives. In a speech at the 2001 Excellence in Government conference (cosponsored by Government Executive) in Washington, Daniels noted that more than half of the members of the Senior Executive Service had been rated "outstanding" the previous year.
Outstanding performance "is defined as consistent performance at exceptional levels," Daniels said. "Well, obviously, what's exceptional right now is anybody who is not outstanding. It's not that good at Lake Wobegon."
Daniels also served as the administration's designated tough guy on budget issues, and had difficult relationships with many members of Congress as a result.
"I think Mitch Daniels did more good than harm, but his personality got in the way a lot in terms of getting real money to get things done," Light said.
In 2001, Daniels came under fire after he was quoted in The Wall Street Journal as saying that the motto of members of Congress is: " 'Don't just stand there. Spend something.' This is the only way they feel relevant."
After the remark was published, Senate Appropriations Committee Chairman Ted Stevens, R-Alaska, told National Journal's David Baumann that Daniels' relationship with appropriators was damaged beyond repair and the OMB chief should "go back home to Indiana."
Late last year, Indiana GOP officials urged Daniels to make a decision on running for governor. "I think I owe people an answer over the next few months, and I don't know what it's going to be," Daniels said in January. "But I will be in Indiana again eventually. I haven't left, as far as I'm concerned. I just work down here."