SECTION 1. RURAL EDUCATION.

    (a) Rural Education Initiative.--Part J of title X of the 
Elementary and Secondary Education Act of 1965 (20 U.S.C. 8271 et seq.) 
is amended--
            (1) by redesignating section 10975 as section 10976; and
            (2) by striking sections 10971 through 10974, and inserting 
        the following:

``SEC. 10971. SHORT TITLE.

    ``This subpart may be cited as the ``Rural Education Initiative 
Act''.

``SEC. 10972. FINDINGS.

    ``Congress makes the following findings:
            ``(1) Under Federal law there is no consistent definition 
        of rural schools.
            ``(2) Rural school districts do not benefit as much as the 
        school districts could from Federal education funding because 
        the unique needs of rural school districts do not necessarily 
        fit the categorical Federal formula programs.
            ``(3) Rural schools often cannot compete for Federal 
        funding distributed by competitive grants because the schools 
        lack the personnel needed to prepare grant applications and the 
        resources to hire specialists in the writing of Federal grant 
        proposals.
            ``(4) Small school districts with fewer than 600 students 
        often cannot use Federal grant funds distributed by formula 
        because the formula allocation does not provide enough revenue 
        to carry out the program the grant is intended to fund.

``SEC. 10973. FORMULA GRANT PROGRAM AUTHORIZED.

    ``(a) Alternative Uses.--
            ``(1) In general.--Notwithstanding any other provision of 
        law, an eligible local educational agency may use the 
        applicable funding, that the agency is eligible to receive from 
        the State educational agency 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.
            ``(2) Notification.--An eligible local educational agency 
        shall notify the State educational agency of the local 
        educational agency's intention to use the applicable funding in 
        accordance with paragraph (1) not later than a date that is 
        established by the State educational agency for the 
        notification.
    ``(b) Eligibility.--A local educational agency shall be eligible to 
use the applicable funding in accordance with subsection (a) if--
            ``(1) the total number of students in average daily 
        attendance at all of the schools served by the local 
        educational agency is less than 600; and
            ``(2) all of the schools served by the local educational 
        agency are located in a community with a Rural-Urban Continuum 
        Code of 6, 7, 8, or 9, as determined by the Secretary of 
        Agriculture.
    ``(c) Applicable Funding.--In this section, the term ``applicable 
funding'' means funds provided under each of the following provisions 
of law:
            ``(1) Section 307 of the Department of Education 
        Appropriations Act, 1999.
            ``(2) Titles II, IV, and VI.
    ``(d) Disbursal.--Each State educational agency that receives 
applicable funding for a fiscal year shall disburse the applicable 
funding to local educational agencies for alternative uses under this 
section for the fiscal year at the same time that the State educational 
agency disburses the applicable funding to local educational agencies 
that do not intend to use the applicable funding for such alternative 
uses for the fiscal year.
    ``(e) Supplement Not Supplant.--Funds made available under this 
section shall be used to supplement and not supplant any other Federal, 
State or local education funds.
    ``(f) Special Rule.--References in Federal law to funds for the 
provisions of law set forth in subsection (c) may be considered to be 
references to funds for this section.

``SEC. 10974. COMPETITIVE GRANT PROGRAM AUTHORIZED.

    ``(a) In General.--The Secretary is authorized to award grants to 
eligible local educational agencies to enable the local educational 
agencies 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.
    ``(b) Eligibility.--A local educational agency shall be eligible to 
receive a grant under this section if--
            ``(1) the total number of students in average daily 
        attendance at all of the schools served by the local 
        educational agency is less than 600; and
            ``(2) all of the schools served by the local educational 
        agency are located in a community with a Rural-Urban Continuum 
        Code of 6, 7, 8, or 9, as determined by the Secretary of 
        Agriculture.
    ``(c) Amount.--
            ``(1) In general.--The Secretary shall award a grant to a 
        local educational agency under this section for a fiscal year 
        in an amount equal to the amount determined under paragraph (2) 
        for the fiscal year minus the total amount received under the 
        provisions of law described under section 10973(c) for the 
        fiscal year.
            ``(2) Determination.--The amount referred to in paragraph 
        (1) is as follows:
                    ``(A) If the number of children in average daily 
                attendance at the schools served by such agency is 
                greater than 0 and less than 50, then the amount is 
                $20,000.
                    ``(B) If the number of such children is greater 
                than or equal to 50 and less than 150, then the amount 
                is $30,000.
                    ``(C) If the number of such children is greater 
                than or equal to 150 and less than 300, then the amount 
                is $40,000.
                    ``(D) If the number of such children is greater 
                than or equal to 300 and less than 450, then the amount 
                is $50,000.
                    ``(E) If the number of such children is greater 
                than or equal to 450 and less than 600, then the amount 
                is $60,000.
            ``(3) Census determination.--
                    ``(A) In general.--Each local educational agency 
                desiring a grant under this section shall conduct a 
                census not later than December 1 of each year to 
                determine the number of kindergarten through grade 12 
                students in average daily attendance at the schools 
                served by the local educational agency.
                    ``(B) Submission.--Each local educational agency 
                shall submit the number described in subparagraph (A) 
                to the Secretary not later than March 1 of each year.
            ``(4) Penalty.--If the Secretary determines that a local 
        educational agency has knowingly submitted false information 
        under paragraph (3) for the purpose of gaining additional funds 
        under this section, then the local educational agency shall be 
        fined an amount equal to twice the difference between the 
        amount the local educational agency received under this 
        section, and the correct amount the local educational agency 
        would have received under this section if the agency had 
        submitted accurate information under paragraph (3).
    ``(d) Disbursal.--The Secretary shall disburse the funds awarded to 
a local educational agency under this section for a fiscal year not 
later than July 1 of that year.
    ``(e) Special Rule.--Any local educational agency that receives a 
grant under this section for a fiscal year shall be ineligible to 
receive funds for the fiscal year under the following provisions of 
law:
            ``(1) Subpart 2 of part A of title III.
            ``(2) Subpart 1 of part A of title VII.
            ``(3) Subpart 2 of part A of title VII.
            ``(4) Section 7142.
            ``(5) Part A of title X.
            ``(6) Part B of title X.
            ``(7) Part I of title X.
    ``(f) Supplement Not Supplant.--Funds made available under this 
section shall be used to supplement and not supplant any other Federal, 
State or local education funds.

``SEC. 10975. ACCOUNTABILITY.

    ``(a) Academic Achievement.--
            ``(1) In general.--Each local educational agency that uses 
        or receives funds under section 10973 or 10974 for a fiscal 
        year shall--
                    ``(A) administer a test, that is used Statewide, to 
                assess the academic achievement of students in the 
                schools served by the local educational agency; or
                    ``(B) in the case of a local educational agency for 
                which there is no Statewide test described in 
                subparagraph (A), administer a test, that is selected 
                by the local educational agency, to assess the academic 
                achievement of students in the schools served by the 
                local educational agency.
            ``(2) Special rule.--Each local educational agency that 
        uses or receives funds under section 10973 or 10974 shall use 
        the same test described in paragraph (1) for each year of 
        participation in the program under such section.
    ``(b) State Educational Agency Determination Regarding Continuing 
Participation.--Each State educational agency that receives funding 
under the provisions of law described in section 10973(c) shall--
            ``(1) after the 5th year that a local educational agency 
        participates in a program under section 10973 or 10974 and on 
        the basis of the results of the tests described in subsection 
        (a), determine whether the students served by the local 
        educational agency participating in the program performed 
        better on the tests after the 5th year of the participation 
        compared to the results on the tests after the 1st year of the 
        participation;
            ``(2) only permit those local educational agencies that so 
        participated and performed better on the tests to continue to 
        so participate for an additional period of 5 years; and
            ``(3) prohibit those local educational agencies that so 
        participated and did not perform better on the tests from such 
        participation for a period of 5 years from the date of the 
        determination.''.
    (b) Conforming Amendments.--Part J of title X of the Elementary and 
Secondary Education Act of 1965 (20 U.S.C. 8271 et seq.) is amended--
            (1) in section 10951 (20 U.S.C. 8271)--
                    (A) in subsections (a)(1) and (b), by striking 
                ``1995'' and inserting ``2000''; and
                    (B) in subsections (a)(1), (a)(3), and (b), by 
                striking ``10975'' and inserting ``10976'';
            (2) in section 10952 (20 U.S.C. 8272)--
                    (A) by striking paragraph (4); and
                    (B) by redesignating paragraph (5) as paragraph 
                (4);
            (3) in the heading for subpart 2, by striking 
        ``Demonstration Grants'' and inserting ``Initiative''; and
            (4) in section 10976 (as redesignated by subsection 
        (a)(1)), by adding at the end the following:
    ``(d) Rural Eligible Local Educational Agency.--The term `rural 
eligible local educational agency' means a local educational agency--
            ``(1)(A) in which at least 15 percent of the children 
        enrolled in the schools served by such agency are eligible to 
        be counted under part A of title I; and
            ``(B) which is not in a metropolitan statistical area; or
            ``(2) in which the total enrollment in the schools served 
        by such agency is less than 2,500 students and that does not 
        serve schools located in a metropolitan statistical area.''.
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.
Rural Education Initiative Act