To amend title 49, United States Code, to provide for the establishment of a flexibility incentive grant 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.