Federal officials say in a letter to Texas Education Commissioner Robert Scott that they could not award the money to Texas because of "conditional assurances" included in the state's application.
Texas Republicans have balked at a provision in the federal law that requires Texas to make additional assurances to the feds about how Texas schools will be funded for the next three years.
Gov. Rick Perry says complying with the provision he would violate the state constitution.
The letter from the Department of Education asked Scott to resubmit the application without the conditional language.