Dan Domenech, executive director of the American Association of School Administrators, says small school districts, where the superintendent is the only administrator, don't have the resources to compete and will lose out on funds.
"That has been communicated to us extensively by our members -- they're telling us, 'Hey, I'm the superintendent, basically the chief cook and bottle-washer in our community and it's just me and I don't have the capacity and ability to start writing applications,'" he said.
Mark Stevens of the Colorado Department of Education told ABC News most states spent an average of 800-900 hours putting together applications for the Obama administration's Race to the Top program.
Some states that do receive funds say they still feel constrained by the requirements attached to them.
"The federal attempt thus far -- from the mid-1990s through today -- is really just usurping the role of states and localities," said David Shreve of the National Conference of State Legislatures of federal education standards. "They say, 'You have to do this, this and this'… but what they should be doing is pushing states to lower dropouts, achievement gaps and focus funding on outcomes."
Shreve says that although the details are still unclear, the administration's plan does appear to be a step in the right direction towards "outcome-based measures" of student and school success.
Secretary Duncan said 48 states are working together to develop a common definition of what it means for students to be "college- or career-ready." The new multi-faceted measure will be the cornerstone of a revamped system of funding schools based on progress towards that goal.
The existing law rates schools and students based on strictly on test achievement, with a deadline of 2014 for every student to be performing at grade-level.
"It was a utopian goal," schools superintendent of Loudoun County, Va., Ed Hatrick told ABC News, "not that we want to leave any child behind, but our measure for how we leave a child behind was far less than perfect: 50 different methods of standardized testing and we didn't have a nationalized standard."
Hatrick and other school administrators say a more appropriate standard -- now proposed by the Obama administration -- should be 'progress,' not pass-fail.
"If I'm a sixth grade teacher and a student comes to me three grades behind, reading at the third grade level, and they leave me just a year behind, they're still behind -- and in the old system I'd have been labeled as a failure, the school would have been labeled a failure, but I've accelerated their learning. They've had two years of growth for a year's instruction. Not only is that teacher not a failure, I would argue that teacher's an extraordinary teacher," Duncan said.
Accountability of teachers, a hallmark of the No Child Left Behind law, is not going to go away, officials say, it's just going to be different.
"We are anxious to work with the administration to reauthorize the [No Child Left Behind law] in a way that celebrates successful students, educators, and schools," said National Education Association president Dennis Van Roekel. "We don't know all the details of the proposals suggested by President Obama in his State of the Union address, but we agree with him that one of the best anti-poverty programs is a world-class education."