Rural Education Initiative Act

Rural Education Initiative Act - Amends the Elementary and Secondary Education Act of 1965 (ESEA) to establish Rural Education Initiative (REI) programs under subpart 2 of part J (Urban and Rural Education Assistance) of title X (Programs of National Significance). (Replaces current subpart 2 provisions for demonstration grants for rural education, but retains provisions for higher education grants partnerships for rural education.)

(Sec. 1) Makes a 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.

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 that 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 of Education 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. Makes LEAs that receive such competitive grants ineligible for funds under specified ESEA programs.

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 do not perform better from participating for five years from the date of determination.

Authorizes appropriations through FY 2004 for the following ESEA title X part J programs: (1) the REI program established by this Act; (2) higher education grants partnerships for rural education; and (3) Urban Education Demonstration Grants.