Rural Education Initiative Act

Rural Education Initiative Act - Amends the Elementary and Secondary Education Act of 1965 (ESEA) to establish a new part J, Rural Education Initiative (REI), under title X Programs of National Significance. (Replaces the current part J, Urban and Rural Education Assistance and its provisions for demonstration grants for, and White House Conferences on, urban and rural education.)

Makes an local educational agency (LEA) eligible for REI alternative use formula grants and competitive grants if: (1) the total number of students in average daily attendance at all of the schools served by the LEA is less than 600; and (2) all of the schools served by the LEA are located in a community with a Rural-Urban Continuum Code of 6, 7, 8, or 9, as determined by the Secretary of Agriculture. Authorizes the Secretary of Education (the Secretary) to waive such eligibility requirements for competitive grants.

Provides, under the alternative use formula grant program, that an eligible LEA may use applicable funding that it is eligible to receive from the State educational agency (SEA) for a fiscal year, to support local or statewide education reform efforts intended to improve the achievement of elementary school and secondary school students and the quality of instruction provided for the students. Defines applicable funding as funds received under: (1) specified provisions of the Department of Education Appropriations Act, 1999; (2) ESEA title II (Dwight D. Eisenhower Professional Development Program); (3) ESEA title IV (Safe and Drug-Free Schools and Communities); and (4) ESEA title VI (Innovative Education Program Strategies). Requires each SEA receiving applicable funding to disburse it to LEAs for alternative uses at the same times it disburses it to LEAs that do not intend to use it for alternative uses for that fiscal year.

Authorizes the Secretary to award competitive grants to eligible LEAs to support local or statewide education reform efforts intended to improve the achievement of elementary school and secondary school students and the quality of instruction provided for the students. Sets forth formulas for determining the amounts of such grants, based on numbers of children in average daily attendance at schools served by the LEAs, minus amounts received under applicable funding.

Authorizes appropriations for the REI program.

Sets forth accountability provisions. Requires LEAs that receive REI alternative use formula grants or competitive grants to administer tests to assess the academic achievement of students in their schools. Requires each SEA that receives applicable funding to: (1) determine, after the fifth year of an LEA's participation in either REI grant program, whether the LEA's students are performing better on such tests than after the first year of participation; (2) only permit LEAs that perform better to continue to participate for an additional five years; and (3) prohibit LEAs that did not perform better from participating for five years from the date of determination.