SECTION 1. FLEXIBILITY INCENTIVE GRANT PILOT PROGRAM.

    (a) In General.--Chapter 53 of title 49, United States Code, is 
amended by adding at the end the following:
``Sec. 5341. Flexibility incentive grant pilot program
    ``(a) Purpose.--The purpose of this section is to provide 
incentives to encourage States to establish new sources of revenue for 
public transportation projects and services and to reward States for 
creating more flexibility in the use of their existing transportation 
funds.
    ``(b) Establishment of Program.--The Secretary of Transportation 
shall establish a flexibility incentive grant pilot program in 
accordance with this section.
    ``(c) Applications.--
            ``(1) In general.--A State may submit application to the 
        Secretary for a grant under the section for each of fiscal 
        years 2008, 2009, 2010, and 2011 not later than the August 1 
        preceding the first day of such fiscal year.
            ``(2) Contents.--An application of a State for a grant for 
        a fiscal year under this section shall contain, at a minimum, 
        the aggregate amount that the State and the counties of the 
        State expended (excluding amounts from Federal sources) on 
        public transportation projects and services for each of the 
        State's 2 fiscal years preceding the date of the application, 
        together with such supporting documentation as the Secretary 
        may require by regulation.
    ``(d) Determinations by the Secretary.--Not later than September 1 
of each of calendar years 2008 through 2011, the Secretary shall 
determine for each State that submitted an application for a grant 
under subsection (c) for the fiscal year beginning on September 30th of 
that calendar year if the State and the counties of the State increased 
the aggregate amount that the State and such counties expended 
(excluding amounts from Federal sources) on public transportation 
projects and services from the State's second fiscal year preceding 
such September 1 to the State's first fiscal year preceding such 
September 1, the amount of such increase, and the percentage of such 
increase over the State's second preceding fiscal year.
    ``(e) Grants for Increased Public Transportation Funding.--
            ``(1) States with an increase of 10 percent or more.--
        Subject to paragraph (2) and subsection (g)--
                    ``(A) the Secretary shall make a grant for each of 
                fiscal years 2008 through 2011 to each State--
                            ``(i) whose percentage increase, as 
                        determined by the Secretary under subsection 
                        (d) with respect to such fiscal year, in 
                        expenditures for public transportation projects 
                        and services over the preceding fiscal year of 
                        the State was 10 percent or more; and
                            ``(ii) whose aggregate expenditures for 
                        such projects and services in the State's 
                        preceding fiscal year was $1,000,000,000 or 
                        less, as determined by the Secretary under 
                        subsection (d).
                    ``(B) the amount of the grant shall be equal to the 
                increase in the aggregate amount that the State and the 
                counties of the State expended (excluding amounts from 
                Federal sources) on public transportation projects and 
                services from the second preceding fiscal year of the 
                State to the first preceding fiscal year of the State, 
                as determined by the Secretary under subsection (d).
            ``(2) Large states with an increase of 1 percent or more.--
        Subject to subsection (h), for each of fiscal years 2008 
        through 2011, the Secretary shall make a grant of $50,000,000 
        to each State--
                    ``(A) whose percentage increase, as determined by 
                the Secretary under subsection (d) with respect to such 
                fiscal year, in expenditures for public transportation 
                projects and services over the preceding fiscal year of 
                the State was 1 percent or more; and
                    ``(B) whose aggregate expenditures for such 
                projects and services in the State's preceding fiscal 
                year was more than $1,000,000,000, as determined by the 
                Secretary under subsection (d).
    ``(f) States Creating Flexible Transportation Funds.--
            ``(1) New dedicated source of revenue.--
                    ``(A) In general.--Subject to subsection (g), for 
                each of fiscal years 2008 through 2011, the Secretary 
                shall make a grant of $10,000,000 to each State that 
                established in the first preceding fiscal year of the 
                State a dedicated source of revenue for carrying out 
                only public transportation projects and services that 
                the Secretary--
                            ``(i) determines was not in effect in the 
                        second preceding fiscal year of the State; and
                            ``(ii) projects will result in an increase 
                        of 10 percent in State funds available for 
                        expenditure on such projects and services 
                        within 2 years after the date of such 
                        implementation.
                    ``(B) Dedicated source of revenues defined.--For 
                purposes of this paragraph, the term `dedicated source 
                of revenue' may include the dedication of a State motor 
                fuels tax or sales tax, interest on existing highway 
                funds, motor vehicle excise tax, tolls, loans to be 
                made out of highway funds, and such other sources of 
                revenue as the Secretary determines.
            ``(2) Unrestricted use of highway funds.--Subject to 
        subsection (h), for each of fiscal years 2008 through 2011, the 
        Secretary shall make a grant of $10,000,000 to each State that 
        in the preceding fiscal year of the State amended State law or 
        the State constitution to allow funds that were restricted for 
        highway purposes only to be used for public transportation 
        projects and services as well as highway purposes.
    ``(g) Limitation for States Eligibility for Multiple Grants.--If 
the Secretary determines that a State is eligible for a grant under 
more than one of subsections (e)(1), (e)(2), (f)(1), and (f)(2) for a 
fiscal year, the Secretary may only make the grant to the State that is 
for the greatest amount the State is eligible for under such 
subsections.
    ``(h) Use of Grants.--A State may obligate funds granted to it 
under this section for any project or activity eligible for assistance 
under title 23 or chapter 53.
    ``(i) Grant Requirements.--Except as otherwise provided in this 
section--
            ``(1) a grant under this section being used for a public 
        transportation project or activity shall be subject to all of 
        the terms and conditions to which a grant made under section 
        5307 is subject; and
            ``(2) a grant under this section being used for a highway 
        project or activity shall be subject to all of the terms and 
        conditions that would be applicable to such project or activity 
        if such project or activity were being carried out under title 
        23, United States Code.
    ``(j) Federal Share.--The Federal share of the cost of a project or 
activity funded under this section shall be 100 percent.
    ``(k) Authorizations of Appropriations.--There are authorized to be 
appropriated to carry out this section for each of fiscal years 2008 
through 2011 $250,000,000. Such sums shall remain available until 
expended.
    ``(l) Program Evaluation.--Not later than 5 years after the date of 
enactment of this section, the Secretary shall--
            ``(1) conduct a study to evaluate the pilot program 
        authorized by this section; and
            ``(2) submit to the Committee on Transportation and 
        Infrastructure of the House of Representatives and the 
        Committee on Banking, Housing and Urban Affairs of the Senate a 
        report describing the results of the study.''.
    (b) Conforming Amendment.--The analysis for such chapter is amended 
by adding at the end the following:

``5341. Flexibility incentive grant pilot program''.
Directs the Secretary of Transportation to establish a flexibility incentive grant pilot program to encourage states to establish new sources of revenue for public transportation projects and services and to reward states for creating more flexibility in the use of their existing transportation funds.

Requires the Secretary to make a grant for FY2008-FY2011 to: (1) each state whose increase in expenditures for public transportation projects and services over the preceding fiscal year was 10% or more and aggregate expenditures for such projects and services was $1 billion or less; (2) each large state whose increase in expenditures for such projects and services over the preceding fiscal year was 1% or more and aggregate expenditures for such projects and services was more than $1 billion; (3) each state that established in the first preceding fiscal year a dedicated source of revenue (i.e., state motor fuels tax, sales tax, or other specified sources of revenue) for carrying out public transportation projects and services that was not in effect in the second preceding fiscal year and which will result in a 10% increase of state funds expended for such projects and services within two years after such implementation; and (4) each state that in the preceding fiscal year amended state law or the state constitution to allow restricted highway funds to also be used for public transportation projects and services. Sets forth certain grant eligibility requirements.

Directs the Secretary to conduct, and report to Congress on, a study to evaluate the pilot program.
To amend title 49, United States Code, to provide for the establishment of a flexibility incentive grant program.