State and Local Flexibility Improvement Act

State and Local Flexibility Improvement Act - Amends the Elementary and Secondary Education Act of 1965 (ESEA) to give states and local educational agencies (LEAs) greater flexibility in transferring federal funds among specified ESEA programs (relating to teachers, technology, safe and drug-free schools, 21st Century Community Learning Centers, and innovative programs) and from such programs to their allotments under title I.

Replaces the current State and Local Flexibility Demonstration under title VI of the ESEA with a program allowing states to enter five-year performance agreements with the Secretary of Education, and states to enter into performance agreements with LEAs, to: (1) waive statutory and regulatory requirements; (2) consolidate ESEA funds provided for improving student achievement and narrowing achievement gaps, for use in furthering any state educational purpose; and (3) use an alternative method of allocating school improvement funds under part A of title I to more effectively target LEAs and schools serving high proportions of needy students.

Holds states, LEAs, and schools to the requirement that they make adequate yearly progress (AYP) toward challenging state academic performance standards; but allows states to use additional models and systems for measuring AYP, such as longitudinal growth models.

Requires states to give performance agreement priority to LEAs that have failed to make AYP for the two preceding academic years and serve a high percentage of needy students.

Allows the Secretary to terminate an agreement with a state that fails to meet its terms for three consecutive school years.

Lowers the minimum percentage of needy children a school must serve before its LEA may implement a schoolwide program consolidating school improvement funds for use in upgrading the school's entire educational program.