A day after New York City and its teachers union failed to reach an agreement on a new teacher evaluation system, State Education Commissioner John King said he intends to prod the city into meeting its obligations by placing restrictions on future funds, or withholding them.

The city lost out on nearly $250 million dollars in state education aid, plus the opportunity to receive an additional $200 million in grants. But it’s still legally obligated to continue negotiations and must lay the groundwork to prepare for a new system, King said on a conference call with reporters.

“If they do not submit an adequate plan with a clear timeline and budget to begin the work that they promised to do — not once, not twice, but repeatedly over the last three years — we will either suspend funding where appropriate or direct funding where appropriate,” King told reporters.

In a letter to Chancellor Dennis Walcott, King threatened to withhold more than $800 million in federal funds for low-income students, and for improving teacher quality, in New York City. Instead, the commissioner would direct these funds according to Race to the Top priorities. He gave the city until February 15th submit a plan, timeline and budget for training and observing teachers and principals in the lowest performing schools (the bottom 15 percent).

It’s unclear whether or not this is tantamount to a teacher evaluation deal. But the union must sign off on the plan, and the city can pick from several state-approved guidelines.

King also said the city is no longer eligible for federal school improvement grants worth $100 million. These will be made available later this year for the lowest-performing schools. The city could only use funds to develop a teacher evaluation system.