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gwern comments on Problems in Education - Less Wrong Discussion
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Hm, I'm surprised you're surprised. I thought it was widely understood that giving and withholding grants was the main way the federal government got around its lack of de jure authority over them and exerted pressure on state and local governments and school districts* - you can read coverage of the sequester's effect on them and the funding comes as grants, and Obama's "Race To The Top" program was purely about competing for federal grants.
* because they are in effect insolvent without federal money
There are several aspects. I knew that federal highway funds are grants for the purpose of making highways to the interstate standards (eg, landing strips), but also conditional on various things, most famously the 55 speed limit. I thought federal school funding was like that. I am fairly surprised to learn that RTTT was zero-sum, but since it was part of the stimulus, I'm not sure that's very informative. I am still unclear on whether the states proposed things to spend the money on, or whether it was an unrestricted prize for winning the contest.