Source: Delaware, Tennessee Win Ed. Grants

The U.S. Department of Education has picked Delaware and Tennessee to receive part of an unprecedented $4.35 billion to help them improve student performance and transform struggling schools, a source said on Monday.

The states, selected from 16 finalists, are going to receive hundreds of millions in grants in the first round of the federal "Race to the Top" competition. The grants are designed to encourage the use of innovative educational programs.

It wasn't immediately known exactly how much money the two states would receive, but officials in Tennessee said they applied for $500 million and their counterparts in Delaware asked for $100 million.

The source declined to be identified because not all finalists had been yet contacted.

The winners beat out: Colorado, the District of Columbia, Florida, Georgia, Illinois, Kentucky, Louisiana, Massachusetts, New York, North Carolina, Ohio, Pennsylvania, Rhode Island and South Carolina.

Applications were read and scored by panels of five peer reviewers. The 16 with the highest average score visited Washington this month to present their proposals.

Federal officials will collect a second round of applications for the highly selective program in June. The states that were not picked this time can reapply for grants then.

"A lot of people said 'They're going to end up giving it to lots of states' and 'the federal government can never really be selective. It turns out they actually were," said Kati Haycock, president of The Education Trust, a nonpartisan Washington, D.C.-based think tank. "They're setting the bar this high that only two states met it, it sends a very powerful message."

Officials said Georgia and Florida were third and fourth in the rankings for the grants, which means they have an advantage over other states for the second round of grants. Still, several of the finalists are already vowing to reapply for the money.

"We were honored to be one of only 16 finalists for this highly competitive grant, and we will immediately begin working on our application for the next round of funding," said Deborah A. Gist, Commissioner of Elementary and Secondary Education in Rhode Island.

Observers say the winners took to heart the education reforms pushed by the Obama administration, including performance pay for teachers and welcoming charter school policies.

In Tennessee, lawmakers passed a new law during a special session in January that requires half of teacher evaluations to be based on student achievement data, a key reform pushed by the Obama administration, as part of an effort to better their chances.

It also lifted the state's cap on the number of charter schools that can open each year and setting up a statewide school district specifically for failing schools. The changes were made with input from the Tennessee Education Association, the teachers' union.

"This was a unique situation, I think the leadership of the TEA stood up and recognized the importance of what was about to happen, and in these extraordinary times we ought to change the way we do business," Tennessee House Democratic Caucus Chairman Mike Turner.

U.S. Department of Education officials are expected to hold a press conference later Monday to talk about the winners. Education Secretary Arne Duncan was making calls to each finalist Monday morning to let them know the results.

The "Race to the Top" money is part of President Barack Obama's economic stimulus law, which provided $100 billion for schools.

The Education Department asked states to concentrate their proposals on four areas: adopting standards and assessments to better prepare students for careers and college; getting high-quality teachers into classroom; turning around low-performing schools; and creating data systems to track performance.

More than 40 states applied for the grants, scrambling to widen charter school laws and enact performance pay for teachers to prove that they deserved part of the money.

Some education observers have criticized the "Race to the Top" competition, saying the administration is out of touch because it is pushing reform at a time when states can barely afford basic necessities and are laying off teachers by the hundreds.