"We're going to do this in two rounds so districts that aren't doing the right things, that aren't serious about reform, will have a chance to come back," Duncan said. "This is not a federal mandate, this is really just an incentive. The first round of applications will be accepted later this year. A second round will come next spring.
"You'll see some folks who will be sort of business-as-usual and not challenge the status quo," he added, "and you'll see other places where they're really willing to innovate, really willing to push the envelope and get dramatically better -- and that's who we want to invest in."
Some, however, claim that the program is not using nearly enough money to create the kind of reform that this administration is hoping to see.
"It's $5 billion, which sounds like a whole lot of money," the American Enterprise Institute's Andrew Smarick said. "There's about $100 billion in the whole stimulus plan for education. This is just a small chunk, so we really have to manage our expectations about what it's going to be able to accomplish."
Smarick voiced concerns that states ultimately may do what they wish with the one-time cash infusion.
"There is this concern that maybe a state gets $200 million and then, at the end of a year or two, they have nothing to show for it other than preserving jobs and programs," he said. "But this is a problem when you give away big sums of money and just give it to states for things that they promise to do."
Duncan did not offer clear specifics on how the Department of Education would monitor how the money was being spent, but promised "unparalleled transparency."
"We want to work with these states on a forward-going basis to make sure we're all learning from each other," he said. "I'm sure states will make some mistakes. This won't happen perfectly. But there's going to be a lot more good that can come out of this."
Despite the many challenges of administering these grants, the Obama administration is sending a clear message to America's teachers: Embrace merit-based pay or risk losing out on millions of dollars of stimulus money.
Long opposed by teachers' unions, the application requires educators to be evaluated by the achievement of their students and calls on states to provide opportunities for effective teachers to receive additional compensation. The Race to the Top also challenges the tenure system by encouraging states to fire under-performing tenured teachers.
Four states ? Wisconsin, Nevada, New York and Colorado ? are already out of the running for the first round of grant applications because they have legal barriers that prevent linking student achievement to teacher evaluations.
"It's not just what you're doing, it's how you do it that's so important," said Duncan, who was booed earlier this month by teacher unions when he spoke out in favor of merit-based pay. "We have to reward excellence. I don't know why in education we've been scared of that, [why] somehow we've been scared to talk about how much great teaching matters, great principals matter."
By linking pay to performance, many fear that the best teachers will be encouraged to teach at the better schools. Duncan, however, disagreed.