The U.S. Department of Education named 16 finalists Thursday in the first round of its "Race to the Top" competition, which will deliver $4.35 billion in school reform grants.

Selected from a pool of 41 applicants are: Colorado, Delaware, the District of Columbia, Florida, Georgia, Illinois, Kentucky, Louisiana, Massachusetts, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina and Tennessee. The winners will be chosen in April, and a second round of applications accepted in June.

"These states are an example for the country of what is possible when adults come together to do the right thing for children," U.S. Secretary of Education Arne Duncan said.

The grants are designed to reward states that have adopted and will continue implementing innovative reforms to improve student performance.

The money is part of President Barack Obama's economic stimulus law, which provided an unprecedented $100 billion for schools. Much of that has gone toward preventing teacher layoffs and addressing other budget concerns. The $4.35 billion "Race to the Top" fund is targeted specifically for education reform.

Applications were read and scored by panels of five peer reviewers. Those with the highest average score were selected to visit Washington later this month to present their proposals. The Education Department said it expects no more than half of the money to be awarded in the first phase of the competition.

Duncan said they are setting a high bar in the first phase and anticipate few winners.

"But this isn't just about the money," Duncan said. "It's about collaboration among all stakeholders, building a shared agenda, and challenging ourselves to improve the way our students learn."

Duncan has said the money could go to a total of 10 to 20 states.

The Education Department asked states to concentrate their proposals on four areas prioritized in the Recovery Act: 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.

States also were required to be legally permitted to link student performance data to teacher evaluations.

Critics have questioned the timing, saying the administration is out of touch with state budget needs in putting forward billions in reform at a time when many districts can barely afford basic necessities.

Florida's K-12 education budget is facing a roughly $1 billion shortfall, including a $778 million reduction in local property taxes because of falling real estate values. The rest is due mainly to increased enrollment from an influx of Haitian children displaced by the earthquake there and former private school students whose parents no longer can afford tuition.

"You can always say now is not the right time for change," said Amy Wilkins, vice president for government affairs and communications at The Education Trust. "But the fact is that improving education is sort of a linchpin in improving the economic health of the country. So we have to do this now."