The news from Washington is a huge blow for California schools. Gov. Schwarzenegger and other education reformers had pushed so hard to change state laws in order to qualify for part of the $4.3 billion in Race to The Top grants, but apparently those changes didn't go far enough.
The application rejection comes on the same day students, teachers and parents participated in numerous protests throughout the state denouncing repeated budget cuts to public education.
At one point, they egged the governor and lawmakers to come down to face them, but few did.
Concerned parent Kari Blauser thinks without federal help that could have given California as much as $700 million, it can only mean more cuts to classrooms.
"This could definitely translate into more cuts, that's where it's heading, that's where it's been heading," she said.
While lawmakers believe they have already slashed too much from education, leaders cannot promise there will not be more.
Cuts have been a primary way to balance the state budget.
"We have a responsibility to govern and in the end, if the deficit remains, if it's $10 billion, $9 billion, $8 billion, we have more work to do and we'll do it," State Senate President Darrell Steinberg, D-Sacramento, said.
Trying to put a bright spot on things, some education leaders said it really was not about the money, but the controversial changes aimed at improve schools, including linking teacher performance to student test scores.
"Focus on low-performing schools, retain and track the best and the brightest amongst us for the teaching profession, and to look at our standards, our common core standards to be internationally benchmarked," State Superintendent of Public Instruction Jack O'Connell said.
California can reapply for what is left of the grants after the winning states take their money.