‘‘§ 5339. 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 transit 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) SELECTION PROCESS AND CRITERIA.—Not later 
than 90 days after the date of enactment of this section, 
the Secretary shall establish a process and criteria for se-
lecting States to participate in the pilot program. Any 
State may apply under the process to participate in the 
pilot program. 
‘‘(d) SELECTION OF PARTICIPATING STATES.—The 
Secretary shall select States to participate in the pilot pro-
gram under the selection process, and based on the selec-
tion criteria, established by the Secretary. 
‘‘(e) DETERMINATIONS BY THE SECRETARY.—Not 
later than September 1 of each of calendar years 2004 
through 2009, the Secretary shall determine which of the 
States selected to participate in the pilot program in-
creased the aggregate amount of State funds (excluding 
funds from Federal sources) that the State expended on 
transit 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 in-
crease, and the percentage of such increase over the 
State’s second preceding fiscal year. 
‘‘(f) GRANTS FOR INCREASED TRANSIT FUNDING.—
‘‘(1) STATES WITH AN INCREASE OF 10 PER-
CENT OR MORE.—Subject to paragraph (2) and sub-
section (h)—
‘‘(A) the Secretary shall make a grant for 
each of fiscal years 2006 through 2010 to each 
State selected to participate in the pilot pro-
gram whose percentage increase in expenditures 
for transit projects and services over the pre-
ceding fiscal year of the State was 10 percent 
or more, as determined by the Secretary under 
subsection (e); and 
‘‘(B) the amount of the grant shall be 
equal to the increase in the aggregate amount 
of State funds (excluding funds from Federal 
sources) that the State expended on transit 
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 (e); except that the
amount 
of 
the 
grant 
may 
not 
exceed 
$5,000,000. 
‘‘(2) LARGE STATES WITH AN INCREASE OF 1 
PERCENT OR MORE.—Subject to subsection (h), for 
each of fiscal years 2006 through 2010, the Sec-
retary shall make a grant of $10,000,000 to each 
State selected to participate in the pilot program 
whose percentage increase in expenditures for tran-
sit projects and services over the preceding fiscal 
year of the State was 1 percent or more, and whose 
aggregate expenditures for such projects and serv-
ices in the State’s preceding fiscal year was more 
than $1,000,000,000, as determined by the Sec-
retary under subsection (e). 
‘‘(g) STATES
CREATING
FLEXIBLE
TRANSPOR-
TATION FUNDS.—
‘‘(1) NEW DEDICATED SOURCE OF REVENUE.—
‘‘(A) IN GENERAL.—Subject to subsection 
(h), for each of fiscal years 2004 through 2010, 
the 
Secretary 
shall 
make 
a 
grant 
of 
$10,000,000 to each State that implemented in 
the first preceding fiscal year of the State a 
dedicated source of revenue for carrying out 
only transit projects and services that the Sec-
retary—
‘‘(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 imple-
mentation. 
‘‘(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 2004 through 2010, 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 re-
stricted for highway purposes only to be used for 
transit projects and services as well as highway pur-
poses.
‘‘(h) LIMITATION
FOR STATES ELIGIBILITY
FOR 
MULTIPLE GRANTS.—If the Secretary determines that a 
State is eligible for a grant under more than one of sub-
sections (f)(1), (f)(2), (g)(1), and (g)(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. 
‘‘(i) 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. 
‘‘(j) GRANT REQUIREMENTS.—Except as otherwise 
provided in this section—
‘‘(1) a grant under this section being used for 
a transit 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. 
‘‘(k) FEDERAL SHARE.—The Federal share of the 
cost of a project or activity funded under this section shall 
be 100 percent.