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Schools Chancellor Joel Klein said today that he is working closely with New York officials on a Race to the Top application, a sign that he thinks the state has a chance to win the federal funds.

The city could have pursued the path forged by Los Angeles, which has petitioned the Obama administration to allow it to apply separately from California.

New York and California both face a possible shut-out from the Race to the Top Fund because of the grant program’s requirement that states allow teachers to be evaluated based on student test scores. Both states have laws on the books banning such evaluation that would seemingly render the states ineligible for the funds.

If the federal government accepts Los Angeles’s petition, New York City could reasonably make the same argument. But Klein, who has described himself as a friend of U.S. Secretary of Education Arne Duncan, is instead trying to throw the city’s weight behind the state’s application.

“As I understand it, only states are eligible and so we are working closely with the state,” Klein said this morning after an appearance at an NAACP back-to-school event in downtown Brooklyn.

The chancellor said he has been “in constant touch” with Board of Regents Chancellor Merryl Tisch, as well as Regent James Tallon and consultant and former Klein deputy JoEllen Lynch, both of whom are working on the state’s application.

The Fund was designed to award states for educational innovations, but Los Angeles Unified School District Superintendent Ramon Cortines argued that the city school system has a larger enrollment than half the states and should be considered. New York is the only city with a school district larger than Los Angeles’.

Klein noted that there is a separate, $650-million stimulus pool for city school districts that New York City will seek. But he said the size of the state fund made it crucial that New York submit a strong application.

“Race to the Top is where the real money is,” he said.