WELFARE REFORM LAW - H.R. 3734 TITLE I - BLOCK GRANTS FOR TEMPORARY ASSISTANCE FOR NEEDY FAMILIES TITLE I--BLOCK GRANTS FOR TEMPORARY ASSISTANCE FOR NEEDY FAMILIES SEC. 101. FINDINGS. The Congress makes the following findings: (1) Marriage is the foundation of a successful society. (2) Marriage is an essential institution of a successful society which promotes the interests of children. (3) Promotion of responsible fatherhood and motherhood is integral to successful child rearing and the well-being of children. (4) In 1992, only 54 percent of single-parent families with children had a child support order established and, of that 54 percent, only about one-half received the full amount due. Of the cases enforced through the public child support enforcement system, only 18 percent of the caseload has a collection. (5) The number of individuals receiving aid to families with dependent children (in this section referred to as `AFDC') has more than tripled since 1965. More than two-thirds of these recipients are children. Eighty-nine percent of children receiving AFDC benefits now live in homes in which no father is present. (A)(i) The average monthly number of children receiving AFDC benefits-- (I) was 3,300,000 in 1965; (II) was 6,200,000 in 1970; (III) was 7,400,000 in 1980; and (IV) was 9,300,000 in 1992. (ii) While the number of children receiving AFDC benefits increased nearly threefold between 1965 and 1992, the total number of children in the United States aged 0 to 18 has declined by 5.5 percent. (B) The Department of Health and Human Services has estimated that 12,000,000 children will receive AFDC benefits within 10 years. (C) The increase in the number of children receiving public assistance is closely related to the increase in births to unmarried women. Between 1970 and 1991, the percentage of live births to unmarried women increased nearly threefold, from 10.7 percent to 29.5 percent. (6) The increase of out-of-wedlock pregnancies and births is well documented as follows: (A) It is estimated that the rate of nonmarital teen pregnancy rose 23 percent from 54 pregnancies per 1,000 unmarried teenagers in 1976 to 66.7 pregnancies in 1991. The overall rate of nonmarital pregnancy rose 14 percent from 90.8 pregnancies per 1,000 unmarried women in 1980 to 103 in both 1991 and 1992. In contrast, the overall pregnancy rate for married couples decreased 7.3 percent between 1980 and 1991, from 126.9 pregnancies per 1,000 married women in 1980 to 117.6 pregnancies in 1991. (B) The total of all out-of-wedlock births between 1970 and 1991 has risen from 10.7 percent to 29.5 percent and if the current trend continues, 50 percent of all births by the year 2015 will be out-of-wedlock. (7) An effective strategy to combat teenage pregnancy must address the issue of male responsibility, including statutory rape culpability and prevention. The increase of teenage pregnancies among the youngest girls is particularly severe and is linked to predatory sexual practices by men who are significantly older. (A) It is estimated that in the late 1980's, the rate for girls age 14 and under giving birth increased 26 percent. (B) Data indicates that at least half of the children born to teenage mothers are fathered by adult men. Available data suggests that almost 70 percent of births to teenage girls are fathered by men over age 20. (C) Surveys of teen mothers have revealed that a majority of such mothers have histories of sexual and physical abuse, primarily with older adult men. (8) The negative consequences of an out-of-wedlock birth on the mother, the child, the family, and society are well documented as follows: (A) Young women 17 and under who give birth outside of marriage are more likely to go on public assistance and to spend more years on welfare once enrolled. These combined effects of `younger and longer' increase total AFDC costs per household by 25 percent to 30 percent for 17-year-olds. (B) Children born out-of-wedlock have a substantially higher risk of being born at a very low or moderately low birth weight. (C) Children born out-of-wedlock are more likely to experience low verbal cognitive attainment, as well as more child abuse, and neglect. (D) Children born out-of-wedlock were more likely to have lower cognitive scores, lower educational aspirations, and a greater likelihood of becoming teenage parents themselves. (E) Being born out-of-wedlock significantly reduces the chances of the child growing up to have an intact marriage. (F) Children born out-of-wedlock are 3 times more likely to be on welfare when they grow up. (9) Currently 35 percent of children in single-parent homes were born out-of-wedlock, nearly the same percentage as that of children in single-parent homes whose parents are divorced (37 percent). While many parents find themselves, through divorce or tragic circumstances beyond their control, facing the difficult task of raising children alone, nevertheless, the negative consequences of raising children in single-parent homes are well documented as follows: (A) Only 9 percent of married-couple families with children under 18 years of age have income below the national poverty level. In contrast, 46 percent of female-headed households with children under 18 years of age are below the national poverty level. (B) Among single-parent families, nearly 1/2 of the mothers who never married received AFDC while only 1/5 of divorced mothers received AFDC. (C) Children born into families receiving welfare assistance are 3 times more likely to be on welfare when they reach adulthood than children not born into families receiving welfare. (D) Mothers under 20 years of age are at the greatest risk of bearing low birth weight babies. (E) The younger the single-parent mother, the less likely she is to finish high school. (F) Young women who have children before finishing high school are more likely to receive welfare assistance for a longer period of time. (G) Between 1985 and 1990, the public cost of births to teenage mothers under the aid to families with dependent children program, the food stamp program, and the medicaid program has been estimated at $120,000,000,000. (H) The absence of a father in the life of a child has a negative effect on school performance and peer adjustment. (I) Children of teenage single parents have lower cognitive scores, lower educational aspirations, and a greater likelihood of becoming teenage parents themselves. (J) Children of single-parent homes are 3 times more likely to fail and repeat a year in grade school than are children from intact 2-parent families. (K) Children from single-parent homes are almost 4 times more likely to be expelled or suspended from school. (L) Neighborhoods with larger percentages of youth aged 12 through 20 and areas with higher percentages of single-parent households have higher rates of violent crime. (M) Of those youth held for criminal offenses within the State juvenile justice system, only 29.8 percent lived primarily in a home with both parents. In contrast to these incarcerated youth, 73.9 percent of the 62,800,000 children in the Nation's resident population were living with both parents. (10) Therefore, in light of this demonstration of the crisis in our Nation, it is the sense of the Congress that prevention of out-of-wedlock pregnancy and reduction in out-of-wedlock birth are very important Government interests and the policy contained in part A of title IV of the Social Security Act (as amended by section 103(a) of this Act) is intended to address the crisis. SEC. 102. REFERENCE TO SOCIAL SECURITY ACT. Except as otherwise specifically provided, wherever in this title an amendment is expressed in terms of an amendment to or repeal of a section or other provision, the reference shall be considered to be made to that section or other provision of the Social Security Act. SEC. 103. BLOCK GRANTS TO STATES. (a) IN GENERAL- Part A of title IV (42 U.S.C. 601 et seq.) is amended-- (1) by striking all that precedes section 418 (as added by section 603(b)(2) of this Act) and inserting the following: `PART A--BLOCK GRANTS TO STATES FOR TEMPORARY ASSISTANCE FOR NEEDY FAMILIES `SEC. 401. PURPOSE. `(a) IN GENERAL- The purpose of this part is to increase the flexibility of States in operating a program designed to-- `(1) provide assistance to needy families so that children may be cared for in their own homes or in the homes of relatives; `(2) end the dependence of needy parents on government benefits by promoting job preparation, work, and marriage; `(3) prevent and reduce the incidence of out-of-wedlock pregnancies and establish annual numerical goals for preventing and reducing the incidence of these pregnancies; and `(4) encourage the formation and maintenance of two-parent families. `(b) NO INDIVIDUAL ENTITLEMENT- This part shall not be interpreted to entitle any individual or family to assistance under any State program funded under this part. `SEC. 402. ELIGIBLE STATES; STATE PLAN. `(a) IN GENERAL- As used in this part, the term `eligible State' means, with respect to a fiscal year, a State that, during the 2-year period immediately preceding the fiscal year, has submitted to the Secretary a plan that the Secretary has found includes the following: `(1) OUTLINE OF FAMILY ASSISTANCE PROGRAM- `(A) GENERAL PROVISIONS- A written document that outlines how the State intends to do the following: `(i) Conduct a program, designed to serve all political subdivisions in the State (not necessarily in a uniform manner), that provides assistance to needy families with (or expecting) children and provides parents with job preparation, work, and support services to enable them to leave the program and become self-sufficient. `(ii) Require a parent or caretaker receiving assistance under the program to engage in work (as defined by the State) once the State determines the parent or caretaker is ready to engage in work, or once the parent or caretaker has received assistance under the program for 24 months (whether or not consecutive), whichever is earlier. `(iii) Ensure that parents and caretakers receiving assistance under the program engage in work activities in accordance with section 407. `(iv) Take such reasonable steps as the State deems necessary to restrict the use and disclosure of information about individuals and families receiving assistance under the program attributable to funds provided by the Federal Government. `(v) Establish goals and take action to prevent and reduce the incidence of out-of-wedlock pregnancies, with special emphasis on teenage pregnancies, and establish numerical goals for reducing the illegitimacy ratio of the State (as defined in section 403(a)(2)(B)) for calendar years 1996 through 2005. `(vi) Conduct a program, designed to reach State and local law enforcement officials, the education system, and relevant counseling services, that provides education and training on the problem of statutory rape so that teenage pregnancy prevention programs may be expanded in scope to include men. `(B) SPECIAL PROVISIONS- `(i) The document shall indicate whether the State intends to treat families moving into the State from another State differently than other families under the program, and if so, how the State intends to treat such families under the program. `(ii) The document shall indicate whether the State intends to provide assistance under the program to individuals who are not citizens of the United States, and if so, shall include an overview of such assistance. `(iii) The document shall set forth objective criteria for the delivery of benefits and the determination of eligibility and for fair and equitable treatment, including an explanation of how the State will provide opportunities for recipients who have been adversely affected to be heard in a State administrative or appeal process. `(iv) Not later than 1 year after the date of enactment of this Act, unless the chief executive officer of the State opts out of this provision by notifying the Secretary, a State shall, consistent with the exception provided in section 407(e)(2), require a parent or caretaker receiving assistance under the program who, after receiving such assistance for 2 months is not exempt from work requirements and is not engaged in work, as determined under section 407(c), to participate in community service employment, with minimum hours per week and tasks to be determined by the State. `(2) CERTIFICATION THAT THE STATE WILL OPERATE A CHILD SUPPORT ENFORCEMENT PROGRAM- A certification by the chief executive officer of the State that, during the fiscal year, the State will operate a child support enforcement program under the State plan approved under part D. `(3) CERTIFICATION THAT THE STATE WILL OPERATE A FOSTER CARE AND ADOPTION ASSISTANCE PROGRAM- A certification by the chief executive officer of the State that, during the fiscal year, the State will operate a foster care and adoption assistance program under the State plan approved under part E, and that the State will take such actions as are necessary to ensure that children receiving assistance under such part are eligible for medical assistance under the State plan under title XIX. `(4) CERTIFICATION OF THE ADMINISTRATION OF THE PROGRAM- A certification by the chief executive officer of the State specifying which State agency or agencies will administer and supervise the program referred to in paragraph (1) for the fiscal year, which shall include assurances that local governments and private sector organizations-- `(A) have been consulted regarding the plan and design of welfare services in the State so that services are provided in a manner appropriate to local populations; and `(B) have had at least 45 days to submit comments on the plan and the design of such services. `(5) CERTIFICATION THAT THE STATE WILL PROVIDE INDIANS WITH EQUITABLE ACCESS TO ASSISTANCE- A certification by the chief executive officer of the State that, during the fiscal year, the State will provide each member of an Indian tribe, who is domiciled in the State and is not eligible for assistance under a tribal family assistance plan approved under section 412, with equitable access to assistance under the State program funded under this part attributable to funds provided by the Federal Government. `(6) CERTIFICATION OF STANDARDS AND PROCEDURES TO ENSURE AGAINST PROGRAM FRAUD AND ABUSE- A certification by the chief executive officer of the State that the State has established and is enforcing standards and procedures to ensure against program fraud and abuse, including standards and procedures concerning nepotism, conflicts of interest among individuals responsible for the administration and supervision of the State program, kickbacks, and the use of political patronage. `(7) OPTIONAL CERTIFICATION OF STANDARDS AND PROCEDURES TO ENSURE THAT THE STATE WILL SCREEN FOR AND IDENTIFY DOMESTIC VIOLENCE- `(A) IN GENERAL- At the option of the State, a certification by the chief executive officer of the State that the State has established and is enforcing standards and procedures to-- `(i) screen and identify individuals receiving assistance under this part with a history of domestic violence while maintaining the confidentiality of such individuals; `(ii) refer such individuals to counseling and supportive services; and `(iii) waive, pursuant to a determination of good cause, other program requirements such as time limits (for so long as necessary) for individuals receiving assistance, residency requirements, child support cooperation requirements, and family cap provisions, in cases where compliance with such requirements would make it more difficult for individuals receiving assistance under this part to escape domestic violence or unfairly penalize such individuals who are or have been victimized by such violence, or individuals who are at risk of further domestic violence. `(B) DOMESTIC VIOLENCE DEFINED- For purposes of this paragraph, the term `domestic violence' has the same meaning as the term `battered or subjected to extreme cruelty', as defined in section 408(a)(7)(C)(iii). `(b) PUBLIC AVAILABILITY OF STATE PLAN SUMMARY- The State shall make available to the public a summary of any plan submitted by the State under this section. `SEC. 403. GRANTS TO STATES. `(a) GRANTS- `(1) FAMILY ASSISTANCE GRANT- `(A) IN GENERAL- Each eligible State shall be entitled to receive from the Secretary, for each of fiscal years 1996, 1997, 1998, 1999, 2000, 2001, and 2002, a grant in an amount equal to the State family assistance grant. `(B) STATE FAMILY ASSISTANCE GRANT DEFINED- As used in this part, the term `State family assistance grant' means the greatest of-- `(i) 1/3 of the total amount required to be paid to the State under former section 403 (as in effect on September 30, 1995) for fiscal years 1992, 1993, and 1994 (other than with respect to amounts expended by the State for child care under subsection (g) or (i) of former section 402 (as so in effect)); `(ii)(I) the total amount required to be paid to the State under former section 403 for fiscal year 1994 (other than with respect to amounts expended by the State for child care under subsection (g) or (i) of former section 402 (as so in effect)); plus `(II) an amount equal to 85 percent of the amount (if any) by which the total amount required to be paid to the State under former section 403(a)(5) for emergency assistance for fiscal year 1995 exceeds the total amount required to be paid to the State under former section 403(a)(5) for fiscal year 1994, if, during fiscal year 1994 or 1995, the Secretary approved under former section 402 an amendment to the former State plan with respect to the provision of emergency assistance; or `(iii) 4/3 of the total amount required to be paid to the State under former section 403 (as in effect on September 30, 1995) for the 1st 3 quarters of fiscal year 1995 (other than with respect to amounts expended by the State under the State plan approved under part F (as so in effect) or for child care under subsection (g) or (i) of former section 402 (as so in effect)), plus the total amount required to be paid to the State for fiscal year 1995 under former section 403(l) (as so in effect). `(C) TOTAL AMOUNT REQUIRED TO BE PAID TO THE STATE UNDER FORMER SECTION 403 DEFINED- As used in this part, the term `total amount required to be paid to the State under former section 403' means, with respect to a fiscal year-- `(i) in the case of a State to which section 1108 does not apply, the sum of-- `(I) the Federal share of maintenance assistance expenditures for the fiscal year, before reduction pursuant to subparagraph (B) or (C) of section 403(b)(2) (as in effect on September 30, 1995), as reported by the State on ACF Form 231; `(II) the Federal share of administrative expenditures (including administrative expenditures for the development of management information systems) for the fiscal year, as reported by the State on ACF Form 231; `(III) the Federal share of emergency assistance expenditures for the fiscal year, as reported by the State on ACF Form 231; `(IV) the Federal share of expenditures for the fiscal year with respect to child care pursuant to subsections (g) and (i) of former section 402 (as in effect on September 30, 1995), as reported by the State on ACF Form 231; and `(V) the Federal obligations made to the State under section 403 for the fiscal year with respect to the State program operated under part F (as in effect on September 30, 1995), as determined by the Secretary, including additional obligations or reductions in obligations made after the close of the fiscal year; and `(ii) in the case of a State to which section 1108 applies, the lesser of-- `(I) the sum described in clause (i); or `(II) the total amount certified by the Secretary under former section 403 (as in effect during the fiscal year) with respect to the territory. `(D) INFORMATION TO BE USED IN DETERMINING AMOUNTS- `(i) FOR FISCAL YEARS 1992 AND 1993- `(I) In determining the amounts described in subclauses (I) through (IV) of subparagraph (C)(i) for any State for each of fiscal years 1992 and 1993, the Secretary shall use information available as of April 28, 1995. `(II) In determining the amount described in subparagraph (C)(i)(V) for any State for each of fiscal years 1992 and 1993, the Secretary shall use information available as of January 6, 1995. `(ii) FOR FISCAL YEAR 1994- In determining the amounts described in subparagraph (C)(i) for any State for fiscal year 1994, the Secretary shall use information available as of April 28, 1995. `(iii) FOR FISCAL YEAR 1995- `(I) In determining the amount described in subparagraph (B)(ii)(II) for any State for fiscal year 1995, the Secretary shall use the information which was reported by the States and estimates made by the States with respect to emergency assistance expenditures and was available as of August 11, 1995. `(II) In determining the amounts described in subclauses (I) through (III) of subparagraph (C)(i) for any State for fiscal year 1995, the Secretary shall use information available as of October 2, 1995. `(III) In determining the amount described in subparagraph (C)(i)(IV) for any State for fiscal year 1995, the Secretary shall use information available as of February 28, 1996. `(IV) In determining the amount described in subparagraph (C)(i)(V) for any State for fiscal year 1995, the Secretary shall use information available as of October 5, 1995. `(E) APPROPRIATION- Out of any money in the Treasury of the United States not otherwise appropriated, there are appropriated for fiscal years 1996, 1997, 1998, 1999, 2000, 2001, and 2002 such sums as are necessary for grants under this paragraph. `(2) BONUS TO REWARD DECREASE IN ILLEGITIMACY- `(A) IN GENERAL- Each eligible State shall be entitled to receive from the Secretary a grant for each bonus year for which the State demonstrates a net decrease in out-of-wedlock births. `(B) AMOUNT OF GRANT- `(i) IF 5 ELIGIBLE STATES- If there are 5 eligible States for a bonus year, the amount of the grant shall be $20,000,000. `(ii) IF FEWER THAN 5 ELIGIBLE STATES- If there are fewer than 5 eligible States for a bonus year, the amount of the grant shall be $25,000,000. `(C) DEFINITIONS- As used in this paragraph: `(i) ELIGIBLE STATE- `(I) IN GENERAL- The term `eligible State' means a State that the Secretary determines meets the following requirements: `(aa) The State demonstrates that the number of out-of-wedlock births that occurred in the State during the most recent 2-year period for which such information is available decreased as compared to the number of such births that occurred during the previous 2-year period, and the magnitude of the decrease for the State for the period is not exceeded by the magnitude of the corresponding decrease for 5 or more other States for the period. `(bb) The rate of induced pregnancy terminations in the State for the fiscal year is less than the rate of induced pregnancy terminations in the State for fiscal year 1995. `(II) DISREGARD OF CHANGES IN DATA DUE TO CHANGED REPORTING METHODS- In making the determination required by subclause (I), the Secretary shall disregard-- `(aa) any difference between the number of out-of-wedlock births that occurred in a State for a fiscal year and the number of out-of-wedlock births that occurred in a State for fiscal year 1995 which is attributable to a change in State methods of reporting data used to calculate the number of out-of-wedlock births; and `(bb) any difference between the rate of induced pregnancy terminations in a State for a fiscal year and such rate for fiscal year 1995 which is attributable to a change in State methods of reporting data used to calculate such rate. `(ii) BONUS YEAR- The term `bonus year' means fiscal years 1999, 2000, 2001, and 2002. `(D) APPROPRIATION- Out of any money in the Treasury of the United States not otherwise appropriated, there are appropriated for fiscal years 1999 through 2002, such sums as are necessary for grants under this paragraph. `(3) SUPPLEMENTAL GRANT FOR POPULATION INCREASES IN CERTAIN STATES- `(A) IN GENERAL- Each qualifying State shall, subject to subparagraph (F), be entitled to receive from the Secretary-- `(i) for fiscal year 1998 a grant in an amount equal to 2.5 percent of the total amount required to be paid to the State under former section 403 (as in effect during fiscal year 1994) for fiscal year 1994; and `(ii) for each of fiscal years 1999, 2000, and 2001, a grant in an amount equal to the sum of-- `(I) the amount (if any) required to be paid to the State under this paragraph for the immediately preceding fiscal year; and `(II) 2.5 percent of the sum of-- `(aa) the total amount required to be paid to the State under former section 403 (as in effect during fiscal year 1994) for fiscal year 1994; and `(bb) the amount (if any) required to be paid to the State under this paragraph for the fiscal year preceding the fiscal year for which the grant is to be made. `(B) PRESERVATION OF GRANT WITHOUT INCREASES FOR STATES FAILING TO REMAIN QUALIFYING STATES- Each State that is not a qualifying State for a fiscal year specified in subparagraph (A)(ii) but was a qualifying State for a prior fiscal year shall, subject to subparagraph (F), be entitled to receive from the Secretary for the specified fiscal year, a grant in an amount equal to the amount required to be paid to the State under this paragraph for the most recent fiscal year for which the State was a qualifying State. `(C) QUALIFYING STATE- `(i) IN GENERAL- For purposes of this paragraph, a State is a qualifying State for a fiscal year if-- `(I) the level of welfare spending per poor person by the State for the immediately preceding fiscal year is less than the national average level of State welfare spending per poor person for such preceding fiscal year; and `(II) the population growth rate of the State (as determined by the Bureau of the Census) for the most recent fiscal year for which information is available exceeds the average population growth rate for all States (as so determined) for such most recent fiscal year. `(ii) STATE MUST QUALIFY IN FISCAL YEAR 1997- Notwithstanding clause (i), a State shall not be a qualifying State for any fiscal year after 1998 by reason of clause (i) if the State is not a qualifying State for fiscal year 1998 by reason of clause (i). `(iii) CERTAIN STATES DEEMED QUALIFYING STATES- For purposes of this paragraph, a State is deemed to be a qualifying State for fiscal years 1998, 1999, 2000, and 2001 if-- `(I) the level of welfare spending per poor person by the State for fiscal year 1994 is less than 35 percent of the national average level of State welfare spending per poor person for fiscal year 1994; or `(II) the population of the State increased by more than 10 percent from April 1, 1990 to July 1, 1994, according to the population estimates in publication CB94-204 of the Bureau of the Census. `(D) DEFINITIONS- As used in this paragraph: `(i) LEVEL OF WELFARE SPENDING PER POOR PERSON- The term `level of State welfare spending per poor person' means, with respect to a State and a fiscal year-- `(I) the sum of-- `(aa) the total amount required to be paid to the State under former section 403 (as in effect during fiscal year 1994) for fiscal year 1994; and `(bb) the amount (if any) paid to the State under this paragraph for the immediately preceding fiscal year; divided by `(II) the number of individuals, according to the 1990 decennial census, who were residents of the State and whose income was below the poverty line. `(ii) NATIONAL AVERAGE LEVEL OF STATE WELFARE SPENDING PER POOR PERSON- The term `national average level of State welfare spending per poor person' means, with respect to a fiscal year, an amount equal to-- `(I) the total amount required to be paid to the States under former section 403 (as in effect during fiscal year 1994) for fiscal year 1994; divided by `(II) the number of individuals, according to the 1990 decennial census, who were residents of any State and whose income was below the poverty line. `(iii) STATE- The term `State' means each of the 50 States of the United States and the District of Columbia. `(E) APPROPRIATION- Out of any money in the Treasury of the United States not otherwise appropriated, there are appropriated for fiscal years 1998, 1999, 2000, and 2001 such sums as are necessary for grants under this paragraph, in a total amount not to exceed $800,000,000. `(F) GRANTS REDUCED PRO RATA IF INSUFFICIENT APPROPRIATIONS- If the amount appropriated pursuant to this paragraph for a fiscal year is less than the total amount of payments otherwise required to be made under this paragraph for the fiscal year, then the amount otherwise payable to any State for the fiscal year under this paragraph shall be reduced by a percentage equal to the amount so appropriated divided by such total amount. `(G) BUDGET SCORING- Notwithstanding section 257(b)(2) of the Balanced Budget and Emergency Deficit Control Act of 1985, the baseline shall assume that no grant shall be made under this paragraph after fiscal year 2001. `(4) BONUS TO REWARD HIGH PERFORMANCE STATES- `(A) IN GENERAL- The Secretary shall make a grant pursuant to this paragraph to each State for each bonus year for which the State is a high performing State. `(B) AMOUNT OF GRANT- `(i) IN GENERAL- Subject to clause (ii) of this subparagraph, the Secretary shall determine the amount of the grant payable under this paragraph to a high performing State for a bonus year, which shall be based on the score assigned to the State under subparagraph (D)(i) for the fiscal year that immediately precedes the bonus year. `(ii) LIMITATION- The amount payable to a State under this paragraph for a bonus year shall not exceed 5 percent of the State family assistance grant. `(C) FORMULA FOR MEASURING STATE PERFORMANCE- Not later than 1 year after the date of the enactment of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, the Secretary, in consultation with the National Governors' Association and the American Public Welfare Association, shall develop a formula for measuring State performance in operating the State program funded under this part so as to achieve the goals set forth in section 401(a). `(D) SCORING OF STATE PERFORMANCE; SETTING OF PERFORMANCE THRESHOLDS- For each bonus year, the Secretary shall-- `(i) use the formula developed under subparagraph (C) to assign a score to each eligible State for the fiscal year that immediately precedes the bonus year; and `(ii) prescribe a performance threshold in such a manner so as to ensure that-- `(I) the average annual total amount of grants to be made under this paragraph for each bonus year equals $200,000,000; and `(II) the total amount of grants to be made under this paragraph for all bonus years equals $1,000,000,000. `(E) DEFINITIONS- As used in this paragraph: `(i) BONUS YEAR- The term `bonus year' means fiscal years 1999, 2000, 2001, 2002, and 2003. `(ii) HIGH PERFORMING STATE- The term `high performing State' means, with respect to a bonus year, an eligible State whose score assigned pursuant to subparagraph (D)(i) for the fiscal year immediately preceding the bonus year equals or exceeds the performance threshold prescribed under subparagraph (D)(ii) for such preceding fiscal year. `(F) APPROPRIATION- Out of any money in the Treasury of the United States not otherwise appropriated, there are appropriated for fiscal years 1999 through 2003 $1,000,000,000 for grants under this paragraph. `(b) CONTINGENCY FUND- `(1) ESTABLISHMENT- There is hereby established in the Treasury of the United States a fund which shall be known as the `Contingency Fund for State Welfare Programs' (in this section referred to as the `Fund'). `(2) DEPOSITS INTO FUND- Out of any money in the Treasury of the United States not otherwise appropriated, there are appropriated for fiscal years 1997, 1998, 1999, 2000, and 2001 such sums as are necessary for payment to the Fund in a total amount not to exceed $2,000,000,000. `(3) GRANTS- `(A) PROVISIONAL PAYMENTS- If an eligible State submits to the Secretary a request for funds under this paragraph during an eligible month, the Secretary shall, subject to this paragraph, pay to the State, from amounts appropriated pursuant to paragraph (2), an amount equal to the amount of funds so requested. `(B) PAYMENT PRIORITY- The Secretary shall make payments under subparagraph (A) in the order in which the Secretary receives requests for such payments. `(C) LIMITATIONS- `(i) MONTHLY PAYMENT TO A STATE- The total amount paid to a single State under subparagraph (A) during a month shall not exceed 1/12 of 20 percent of the State family assistance grant. `(ii) PAYMENTS TO ALL STATES- The total amount paid to all States under subparagraph (A) during fiscal years 1997 through 2001 shall not exceed the total amount appropriated pursuant to paragraph (2). `(4) ANNUAL RECONCILIATION- Notwithstanding paragraph (3), at the end of each fiscal year, each State shall remit to the Secretary an amount equal to the amount (if any) by which the total amount paid to the State under paragraph (3) during the fiscal year exceeds-- `(A) the Federal medical assistance percentage for the State for the fiscal year (as defined in section 1905(b), as in effect on September 30, 1995) of the amount (if any) by which-- `(i) if the Secretary makes a payment to the State under section 418(a)(2) in the fiscal year-- `(I) the expenditures under the State program funded under this part for the fiscal year, excluding any amounts made available by the Federal Government (except amounts paid to the State under paragraph (3) during the fiscal year that have been expended by the State) and any amounts expended by the State during the fiscal year for child care; exceeds `(II) historic State expenditures (as defined in section 409(a)(7)(B)(iii)), excluding the expenditures by the State for child care under subsection (g) or (i) of section 402 (as in effect during fiscal year 1994) for fiscal year 1994 minus any Federal payment with respect to such child care expenditures; or `(ii) if the Secretary does not make a payment to the State under section 418(a)(2) in the fiscal year-- `(I) the expenditures under the State program funded under this part for the fiscal year (excluding any amounts made available by the Federal Government, except amounts paid to the State under paragraph (3) during the fiscal year that have been expended by the State); exceeds `(II) historic State expenditures (as defined in section 409(a)(7)(B)(iii)); multiplied by `(B) 1/12 times the number of months during the fiscal year for which the Secretary makes a payment to the State under this subsection. `(5) ELIGIBLE MONTH- As used in paragraph (3)(A), the term `eligible month' means, with respect to a State, a month in the 2-month period that begins with any month for which the State is a needy State. `(6) NEEDY STATE- For purposes of paragraph (5), a State is a needy State for a month if-- `(A) the average rate of-- `(i) total unemployment in such State (seasonally adjusted) for the period consisting of the most recent 3 months for which data for all States are published equals or exceeds 6.5 percent; and `(ii) total unemployment in such State (seasonally adjusted) for the 3-month period equals or exceeds 110 percent of such average rate for either (or both) of the corresponding 3-month periods ending in the 2 preceding calendar years; or `(B) as determined by the Secretary of Agriculture (in the discretion of the Secretary of Agriculture), the monthly average number of individuals (as of the last day of each month) participating in the food stamp program in the State in the then most recently concluded 3-month period for which data are available exceeds by not less than 10 percent the lesser of-- `(i) the monthly average number of individuals (as of the last day of each month) in the State that would have participated in the food stamp program in the corresponding 3-month period in fiscal year 1994 if the amendments made by titles IV and VIII of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 had been in effect throughout fiscal year 1994; or `(ii) the monthly average number of individuals (as of the last day of each month) in the State that would have participated in the food stamp program in the corresponding 3-month period in fiscal year 1995 if the amendments made by titles IV and VIII of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 had been in effect throughout fiscal year 1995. `(7) OTHER TERMS DEFINED- As used in this subsection: `(A) STATE- The term `State' means each of the 50 States of the United States and the District of Columbia. `(B) SECRETARY- The term `Secretary' means the Secretary of the Treasury. `(8) ANNUAL REPORTS- The Secretary shall annually report to the Congress on the status of the Fund. `SEC. 404. USE OF GRANTS. `(a) GENERAL RULES- Subject to this part, a State to which a grant is made under section 403 may use the grant-- `(1) in any manner that is reasonably calculated to accomplish the purpose of this part, including to provide low income households with assistance in meeting home heating and cooling costs; or `(2) in any manner that the State was authorized to use amounts received under part A or F, as such parts were in effect on September 30, 1995. `(b) LIMITATION ON USE OF GRANT FOR ADMINISTRATIVE PURPOSES- `(1) LIMITATION- A State to which a grant is made under section 403 shall not expend more than 15 percent of the grant for administrative purposes. `(2) EXCEPTION- Paragraph (1) shall not apply to the use of a grant for information technology and computerization needed for tracking or monitoring required by or under this part. `(c) AUTHORITY TO TREAT INTERSTATE IMMIGRANTS UNDER RULES OF FORMER STATE- A State operating a program funded under this part may apply to a family the rules (including benefit amounts) of the program funded under this part of another State if the family has moved to the State from the other State and has resided in the State for less than 12 months. `(d) AUTHORITY TO USE PORTION OF GRANT FOR OTHER PURPOSES- `(1) IN GENERAL- A State may use not more than 30 percent of the amount of any grant made to the State under section 403(a) for a fiscal year to carry out a State program pursuant to any or all of the following provisions of law: `(A) Title XX of this Act. `(B) The Child Care and Development Block Grant Act of 1990. `(2) LIMITATION ON AMOUNT TRANSFERABLE TO TITLE XX PROGRAMS- Notwithstanding paragraph (1), not more than 1/3 of the total amount paid to a State under this part for a fiscal year that is used to carry out State programs pursuant to provisions of law specified in paragraph (1) may be used to carry out State programs pursuant to title XX. `(3) APPLICABLE RULES- `(A) IN GENERAL- Except as provided in subparagraph (B) of this paragraph, any amount paid to a State under this part that is used to carry out a State program pursuant to a provision of law specified in paragraph (1) shall not be subject to the requirements of this part, but shall be subject to the requirements that apply to Federal funds provided directly under the provision of law to carry out the program, and the expenditure of any amount so used shall not be considered to be an expenditure under this part. `(B) EXCEPTION RELATING TO TITLE XX PROGRAMS- All amounts paid to a State under this part that are used to carry out State programs pursuant to title XX shall be used only for programs and services to children or their families whose income is less than 200 percent of the income official poverty line (as defined by the Office of Management and Budget, and revised annually in accordance with section 673(2) of the Omnibus Budget Reconciliation Act of 1981) applicable to a family of the size involved. `(e) AUTHORITY TO RESERVE CERTAIN AMOUNTS FOR ASSISTANCE- A State may reserve amounts paid to the State under this part for any fiscal year for the purpose of providing, without fiscal year limitation, assistance under the State program funded under this part. `(f) AUTHORITY TO OPERATE EMPLOYMENT PLACEMENT PROGRAM- A State to which a grant is made under section 403 may use the grant to make payments (or provide job placement vouchers) to State-approved public and private job placement agencies that provide employment placement services to individuals who receive assistance under the State program funded under this part. `(g) IMPLEMENTATION OF ELECTRONIC BENEFIT TRANSFER SYSTEM- A State to which a grant is made under section 403 is encouraged to implement an electronic benefit transfer system for providing assistance under the State program funded under this part, and may use the grant for such purpose. `(h) USE OF FUNDS FOR INDIVIDUAL DEVELOPMENT ACCOUNTS- `(1) IN GENERAL- A State to which a grant is made under section 403 may use the grant to carry out a program to fund individual development accounts (as defined in paragraph (2)) established by individuals eligible for assistance under the State program funded under this part. `(2) INDIVIDUAL DEVELOPMENT ACCOUNTS- `(A) ESTABLISHMENT- Under a State program carried out under paragraph (1), an individual development account may be established by or on behalf of an individual eligible for assistance under the State program operated under this part for the purpose of enabling the individual to accumulate funds for a qualified purpose described in subparagraph (B). `(B) QUALIFIED PURPOSE- A qualified purpose described in this subparagraph is 1 or more of the following, as provided by the qualified entity providing assistance to the individual under this subsection: `(i) POSTSECONDARY EDUCATIONAL EXPENSES- Postsecondary educational expenses paid from an individual development account directly to an eligible educational institution. `(ii) FIRST HOME PURCHASE- Qualified acquisition costs with respect to a qualified principal residence for a qualified first-time homebuyer, if paid from an individual development account directly to the persons to whom the amounts are due. `(iii) BUSINESS CAPITALIZATION- Amounts paid from an individual development account directly to a business capitalization account which is established in a federally insured financial institution and is restricted to use solely for qualified business capitalization expenses. `(C) CONTRIBUTIONS TO BE FROM EARNED INCOME- An individual may only contribute to an individual development account such amounts as are derived from earned income, as defined in section 911(d)(2) of the Internal Revenue Code of 1986. `(D) WITHDRAWAL OF FUNDS- The Secretary shall establish such regulations as may be necessary to ensure that funds held in an individual development account are not withdrawn except for 1 or more of the qualified purposes described in subparagraph (B). `(3) REQUIREMENTS- `(A) IN GENERAL- An individual development account established under this subsection shall be a trust created or organized in the United States and funded through periodic contributions by the establishing individual and matched by or through a qualified entity for a qualified purpose (as described in paragraph (2)(B)). `(B) QUALIFIED ENTITY- As used in this subsection, the term `qualified entity' means-- `(i) a not-for-profit organization described in section 501(c)(3) of the Internal Revenue Code of 1986 and exempt from taxation under section 501(a) of such Code; or `(ii) a State or local government agency acting in cooperation with an organization described in clause (i). `(4) NO REDUCTION IN BENEFITS- Notwithstanding any other provision of Federal law (other than the Internal Revenue Code of 1986) that requires consideration of 1 or more financial circumstances of an individual, for the purpose of determining eligibility to receive, or the amount of, any assistance or benefit authorized by such law to be provided to or for the benefit of such individual, funds (including interest accruing) in an individual development account under this subsection shall be disregarded for such purpose with respect to any period during which such individual maintains or makes contributions into such an account. `(5) DEFINITIONS- As used in this subsection-- `(A) ELIGIBLE EDUCATIONAL INSTITUTION- The term `eligible educational institution' means the following: `(i) An institution described in section 481(a)(1) or 1201(a) of the Higher Education Act of 1965 (20 U.S.C. 1088(a)(1) or 1141(a)), as such sections are in effect on the date of the enactment of this subsection. `(ii) An area vocational education school (as defined in subparagraph (C) or (D) of section 521(4) of the Carl D. Perkins Vocational and Applied Technology Education Act (20 U.S.C. 2471(4))) which is in any State (as defined in section 521(33) of such Act), as such sections are in effect on the date of the enactment of this subsection. `(B) POST-SECONDARY EDUCATIONAL EXPENSES- The term `post-secondary educational expenses' means-- `(i) tuition and fees required for the enrollment or attendance of a student at an eligible educational institution, and `(ii) fees, books, supplies, and equipment required for courses of instruction at an eligible educational institution. `(C) QUALIFIED ACQUISITION COSTS- The term `qualified acquisition costs' means the costs of acquiring, constructing, or reconstructing a residence. The term includes any usual or reasonable settlement, financing, or other closing costs. `(D) QUALIFIED BUSINESS- The term `qualified business' means any business that does not contravene any law or public policy (as determined by the Secretary). `(E) QUALIFIED BUSINESS CAPITALIZATION EXPENSES- The term `qualified business capitalization expenses' means qualified expenditures for the capitalization of a qualified business pursuant to a qualified plan. `(F) QUALIFIED EXPENDITURES- The term `qualified expenditures' means expenditures included in a qualified plan, including capital, plant, equipment, working capital, and inventory expenses. `(G) QUALIFIED FIRST-TIME HOMEBUYER- `(i) IN GENERAL- The term `qualified first-time homebuyer' means a taxpayer (and, if married, the taxpayer's spouse) who has no present ownership interest in a principal residence during the 3-year period ending on the date of acquisition of the principal residence to which this subsection applies. `(ii) DATE OF ACQUISITION- The term `date of acquisition' means the date on which a binding contract to acquire, construct, or reconstruct the principal residence to which this subparagraph applies is entered into. `(H) QUALIFIED PLAN- The term `qualified plan' means a business plan which-- `(i) is approved by a financial institution, or by a nonprofit loan fund having demonstrated fiduciary integrity, `(ii) includes a description of services or goods to be sold, a marketing plan, and projected financial statements, and `(iii) may require the eligible individual to obtain the assistance of an experienced entrepreneurial advisor. `(I) QUALIFIED PRINCIPAL RESIDENCE- The term `qualified principal residence' means a principal residence (within the meaning of section 1034 of the Internal Revenue Code of 1986), the qualified acquisition costs of which do not exceed 100 percent of the average area purchase price applicable to such residence (determined in accordance with paragraphs (2) and (3) of section 143(e) of such Code). `(i) SANCTION WELFARE RECIPIENTS FOR FAILING TO ENSURE THAT MINOR DEPENDENT CHILDREN ATTEND SCHOOL- A State to which a grant is made under section 403 shall not be prohibited from sanctioning a family that includes an adult who has received assistance under any State program funded under this part attributable to funds provided by the Federal Government or under the food stamp program, as defined in section 3(h) of the Food Stamp Act of 1977, if such adult fails to ensure that the minor dependent children of such adult attend school as required by the law of the State in which the minor children reside. `(j) REQUIREMENT FOR HIGH SCHOOL DIPLOMA OR EQUIVALENT- A State to which a grant is made under section 403 shall not be prohibited from sanctioning a family that includes an adult who is older than age 20 and younger than age 51 and who has received assistance under any State program funded under this part attributable to funds provided by the Federal Government or under the food stamp program, as defined in section 3(h) of the Food Stamp Act of 1977, if such adult does not have, or is not working toward attaining, a secondary school diploma or its recognized equivalent unless such adult has been determined in the judgment of medical, psychiatric, or other appropriate professionals to lack the requisite capacity to complete successfully a course of study that would lead to a secondary school diploma or its recognized equivalent. `SEC. 405. ADMINISTRATIVE PROVISIONS. `(a) QUARTERLY- The Secretary shall pay each grant payable to a State under section 403 in quarterly installments, subject to this section. `(b) NOTIFICATION- Not later than 3 months before the payment of any such quarterly installment to a State, the Secretary shall notify the State of the amount of any reduction determined under section 412(a)(1)(B) with respect to the State. `(c) COMPUTATION AND CERTIFICATION OF PAYMENTS TO STATES- `(1) COMPUTATION- The Secretary shall estimate the amount to be paid to each eligible State for each quarter under this part, such estimate to be based on a report filed by the State containing an estimate by the State of the total sum to be expended by the State in the quarter under the State program funded under this part and such other information as the Secretary may find necessary. `(2) CERTIFICATION- The Secretary of Health and Human Services shall certify to the Secretary of the Treasury the amount estimated under paragraph (1) with respect to a State, reduced or increased to the extent of any overpayment or underpayment which the Secretary of Health and Human Services determines was made under this part to the State for any prior quarter and with respect to which adjustment has not been made under this paragraph. `(d) PAYMENT METHOD- Upon receipt of a certification under subsection (c)(2) with respect to a State, the Secretary of the Treasury shall, through the Fiscal Service of the Department of the Treasury and before audit or settlement by the General Accounting Office, pay to the State, at the time or times fixed by the Secretary of Health and Human Services, the amount so certified. `SEC. 406. FEDERAL LOANS FOR STATE WELFARE PROGRAMS. `(a) LOAN AUTHORITY- `(1) IN GENERAL- The Secretary shall make loans to any loan-eligible State, for a period to maturity of not more than 3 years. `(2) LOAN-ELIGIBLE STATE- As used in paragraph (1), the term `loan-eligible State' means a State against which a penalty has not been imposed under section 409(a)(1). `(b) RATE OF INTEREST- The Secretary shall charge and collect interest on any loan made under this section at a rate equal to the current average market yield on outstanding marketable obligations of the United States with remaining periods to maturity comparable to the period to maturity of the loan. `(c) USE OF LOAN- A State shall use a loan made to the State under this section only for any purpose for which grant amounts received by the State under section 403(a) may be used, including-- `(1) welfare anti-fraud activities; and `(2) the provision of assistance under the State program to Indian families that have moved from the service area of an Indian tribe with a tribal family assistance plan approved under section 412. `(d) LIMITATION ON TOTAL AMOUNT OF LOANS TO A STATE- The cumulative dollar amount of all loans made to a State under this section during fiscal years 1997 through 2002 shall not exceed 10 percent of the State family assistance grant. `(e) LIMITATION ON TOTAL AMOUNT OF OUTSTANDING LOANS- The total dollar amount of loans outstanding under this section may not exceed $1,700,000,000. `(f) APPROPRIATION- Out of any money in the Treasury of the United States not otherwise appropriated, there are appropriated such sums as may be necessary for the cost of loans under this section. `SEC. 407. MANDATORY WORK REQUIREMENTS. `(a) PARTICIPATION RATE REQUIREMENTS- `(1) ALL FAMILIES- A State to which a grant is made under section 403 for a fiscal year shall achieve the minimum participation rate specified in the following table for the fiscal year with respect to all families receiving assistance under the State program funded under this part: -- [Bold->] The minimum [<-Bold] -- [Bold->] participation [<-Bold] [Bold->] `If the fiscal year is: [<-Bold] -- [Bold->] rate is: [<-Bold] 1997 --25 1998 --30 1999 --35 2000 --40 2001 --45 2002 or thereafter --50. `(2) 2-PARENT FAMILIES- A State to which a grant is made under section 403 for a fiscal year shall achieve the minimum participation rate specified in the following table for the fiscal year with respect to 2-parent families receiving assistance under the State program funded under this part: -- [Bold->] The minimum [<-Bold] -- [Bold->] participation [<-Bold] [Bold->] `If the fiscal year is: [<-Bold] -- [Bold->] rate is: [<-Bold] 1997 --75 1998 --75 1999 or thereafter --90. `(b) CALCULATION OF PARTICIPATION RATES- `(1) ALL FAMILIES- `(A) AVERAGE MONTHLY RATE- For purposes of subsection (a)(1), the participation rate for all families of a State for a fiscal year is the average of the participation rates for all families of the State for each month in the fiscal year. `(B) MONTHLY PARTICIPATION RATES- The participation rate of a State for all families of the State for a month, expressed as a percentage, is-- `(i) the number of families receiving assistance under the State program funded under this part that include an adult or a minor child head of household who is engaged in work for the month; divided by `(ii) the amount by which-- `(I) the number of families receiving such assistance during the month that include an adult or a minor child head of household receiving such assistance; exceeds `(II) the number of families receiving such assistance that are subject in such month to a penalty described in subsection (e)(1) but have not been subject to such penalty for more than 3 months within the preceding 12-month period (whether or not consecutive). `(2) 2-PARENT FAMILIES- `(A) AVERAGE MONTHLY RATE- For purposes of subsection (a)(2), the participation rate for 2-parent families of a State for a fiscal year is the average of the participation rates for 2-parent families of the State for each month in the fiscal year. `(B) MONTHLY PARTICIPATION RATES- The participation rate of a State for 2-parent families of the State for a month shall be calculated by use of the formula set forth in paragraph (1)(B), except that in the formula the term `number of 2-parent families' shall be substituted for the term `number of families' each place such latter term appears. `(3) PRO RATA REDUCTION OF PARTICIPATION RATE DUE TO CASELOAD REDUCTIONS NOT REQUIRED BY FEDERAL LAW- `(A) IN GENERAL- The Secretary shall prescribe regulations for reducing the minimum participation rate otherwise required by this section for a fiscal year by the number of percentage points equal to the number of percentage points (if any) by which-- `(i) the average monthly number of families receiving assistance during the immediately preceding fiscal year under the State program funded under this part is less than `(ii) the average monthly number of families that received aid under the State plan approved under part A (as in effect on September 30, 1995) during fiscal year 1995. The minimum participation rate shall not be reduced to the extent that the Secretary determines that the reduction in the number of families receiving such assistance is required by Federal law. `(B) ELIGIBILITY CHANGES NOT COUNTED- The regulations required by subparagraph (A) shall not take into account families that are diverted from a State program funded under this part as a result of differences in eligibility criteria under a State program funded under this part and eligibility criteria under the State program operated under the State plan approved under part A (as such plan and such part were in effect on September 30, 1995). Such regulations shall place the burden on the Secretary to prove that such families were diverted as a direct result of differences in such eligibility criteria. `(4) STATE OPTION TO INCLUDE INDIVIDUALS RECEIVING ASSISTANCE UNDER A TRIBAL FAMILY ASSISTANCE PLAN- For purposes of paragraphs (1)(B) and (2)(B), a State may, at its option, include families in the State that are receiving assistance under a tribal family assistance plan approved under section 412. `(5) STATE OPTION FOR PARTICIPATION REQUIREMENT EXEMPTIONS- For any fiscal year, a State may, at its option, not require an individual who is a single custodial parent caring for a child who has not attained 12 months of age to engage in work, and may disregard such an individual in determining the participation rates under subsection (a) for not more than 12 months. `(c) ENGAGED IN WORK- `(1) GENERAL RULES- `(A) ALL FAMILIES- For purposes of subsection (b)(1)(B)(i), a recipient is engaged in work for a month in a fiscal year if the recipient is participating in work activities for at least the minimum average number of hours per week specified in the following table during the month, not fewer than 20 hours per week of which are attributable to an activity described in paragraph (1), (2), (3), (4), (5), (6), (7), (8), or (12) of subsection (d), subject to this subsection: [Bold->] [<-Bold] -- [Bold->] The minimum [<-Bold] [Bold->] `If the month is [<-Bold] -- [Bold->] average number of [<-Bold] [Bold->] in fiscal year: [<-Bold] -- [Bold->] hours per week is: [<-Bold] 1997 --20 1998 --20 1999 --25 2000 or thereafter --30. `(B) 2-PARENT FAMILIES- For purposes of subsection (b)(2)(B), an individual is engaged in work for a month in a fiscal year if-- `(i) the individual is making progress in work activities for at least 35 hours per week during the month, not fewer than 30 hours per week of which are attributable to an activity described in paragraph (1), (2), (3), (4), (5), (6), (7), (8), or (12) of subsection (d), subject to this subsection; and `(ii) if the family of the individual receives federally-funded child care assistance and an adult in the family is not disabled or caring for a severely disabled child, the individual's spouse is making progress in work activities during the month, not fewer than 20 hours per week of which are attributable to an activity described in paragraph (1), (2), (3), (4), (5), or (7) of subsection (d). `(2) LIMITATIONS AND SPECIAL RULES- `(A) NUMBER OF WEEKS FOR WHICH JOB SEARCH COUNTS AS WORK- `(i) LIMITATION- Notwithstanding paragraph (1) of this subsection, an individual shall not be considered to be engaged in work by virtue of participation in an activity described in subsection (d)(6) of a State program funded under this part, after the individual has participated in such an activity for 6 weeks (or, if the unemployment rate of the State is at least 50 percent greater than the unemployment rate of the United States, 12 weeks), or if the participation is for a week that immediately follows 4 consecutive weeks of such participation. `(ii) LIMITED AUTHORITY TO COUNT LESS THAN FULL WEEK OF PARTICIPATION- For purposes of clause (i) of this subparagraph, on not more than 1 occasion per individual, the State shall consider participation of the individual in an activity described in subsection (d)(6) for 3 or 4 days during a week as a week of participation in the activity by the individual. `(B) SINGLE PARENT WITH CHILD UNDER AGE 6 DEEMED TO BE MEETING WORK PARTICIPATION REQUIREMENTS IF PARENT IS ENGAGED IN WORK FOR 20 HOURS PER WEEK- For purposes of determining monthly participation rates under subsection (b)(1)(B)(i), a recipient in a 1-parent family who is the parent of a child who has not attained 6 years of age is deemed to be engaged in work for a month if the recipient is engaged in work for an average of at least 20 hours per week during the month. `(C) TEEN HEAD OF HOUSEHOLD WHO MAINTAINS SATISFACTORY SCHOOL ATTENDANCE DEEMED TO BE MEETING WORK PARTICIPATION REQUIREMENTS- For purposes of determining monthly participation rates under sub-section (b)(1)(B)(i), a recipient who is a single head of household and has not attained 20 years of age is deemed, subject to subparagraph (D) of this paragraph, to be engaged in work for a month in a fiscal year if the recipient-- `(i) maintains satisfactory attendance at secondary school or the equivalent during the month; or `(ii) participates in education directly related to employment for at least the minimum average number of hours per week specified in the table set forth in paragraph (1)(A) of this subsection. `(D) NUMBER OF PERSONS THAT MAY BE TREATED AS ENGAGED IN WORK BY VIRTUE OF PARTICIPATION IN VOCATIONAL EDUCATION ACTIVITIES OR BEING A TEEN HEAD OF HOUSEHOLD WHO MAINTAINS SATISFACTORY SCHOOL ATTENDANCE- For purposes of determining monthly participation rates under paragraphs (1)(B)(i) and (2)(B) of subsection (b), not more than 20 percent of individuals in all families and in 2-parent families may be determined to be engaged in work in the State for a month by reason of participation in vocational educational training or deemed to be engaged in work by reason of subparagraph (C) of this paragraph. `(d) WORK ACTIVITIES DEFINED- As used in this section, the term `work activities' means-- `(1) unsubsidized employment; `(2) subsidized private sector employment; `(3) subsidized public sector employment; `(4) work experience (including work associated with the refurbishing of publicly assisted housing) if sufficient private sector employment is not available; `(5) on-the-job training; `(6) job search and job readiness assistance; `(7) community service programs; `(8) vocational educational training (not to exceed 12 months with respect to any individual); `(9) job skills training directly related to employment; `(10) education directly related to employment, in the case of a recipient who has not received a high school diploma or a certificate of high school equivalency; `(11) satisfactory attendance at secondary school or in a course of study leading to a certificate of general equivalence, in the case of a recipient who has not completed secondary school or received such a certificate; and `(12) the provision of child care services to an individual who is participating in a community service program. `(e) PENALTIES AGAINST INDIVIDUALS- `(1) IN GENERAL- Except as provided in paragraph (2), if an individual in a family receiving assistance under the State program funded under this part refuses to engage in work required in accordance with this section, the State shall-- `(A) reduce the amount of assistance otherwise payable to the family pro rata (or more, at the option of the State) with respect to any period during a month in which the individual so refuses; or `(B) terminate such assistance, subject to such good cause and other exceptions as the State may establish. `(2) EXCEPTION- Notwithstanding paragraph (1), a State may not reduce or terminate assistance under the State program funded under this part based on a refusal of an individual to work if the individual is a single custodial parent caring for a child who has not attained 6 years of age, and the individual proves that the individual has a demonstrated inability (as determined by the State) to obtain needed child care, for 1 or more of the following reasons: `(A) Unavailability of appropriate child care within a reasonable distance from the individual's home or work site. `(B) Unavailability or unsuitability of informal child care by a relative or under other arrangements. `(C) Unavailability of appropriate and affordable formal child care arrangements. `(f) NONDISPLACEMENT IN WORK ACTIVITIES- `(1) IN GENERAL- Subject to paragraph (2), an adult in a family receiving assistance under a State program funded under this part attributable to funds provided by the Federal Government may fill a vacant employment position in order to engage in a work activity described in subsection (d). `(2) NO FILLING OF CERTAIN VACANCIES- No adult in a work activity described in subsection (d) which is funded, in whole or in part, by funds provided by the Federal Government shall be employed or assigned-- `(A) when any other individual is on layoff from the same or any substantially equivalent job; or `(B) if the employer has terminated the employment of any regular employee or otherwise caused an involuntary reduction of its workforce in order to fill the vacancy so created with an adult described in paragraph (1). `(3) GRIEVANCE PROCEDURE- A State with a program funded under this part shall establish and maintain a grievance procedure for resolving complaints of alleged violations of paragraph (2). `(4) NO PREEMPTION- Nothing in this subsection shall preempt or supersede any provision of State or local law that provides greater protection for employees from displacement. `(g) SENSE OF THE CONGRESS- It is the sense of the Congress that in complying with this section, each State that operates a program funded under this part is encouraged to assign the highest priority to requiring adults in 2-parent families and adults in single-parent families that include older preschool or school-age children to be engaged in work activities. `(h) SENSE OF THE CONGRESS THAT STATES SHOULD IMPOSE CERTAIN REQUIREMENTS ON NONCUSTODIAL, NONSUPPORTING MINOR PARENTS- It is the sense of the Congress that the States should require noncustodial, nonsupporting parents who have not attained 18 years of age to fulfill community work obligations and attend appropriate parenting or money management classes after school. `(i) REVIEW OF IMPLEMENTATION OF STATE WORK PROGRAMS- During fiscal year 1999, the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate shall hold hearings and engage in other appropriate activities to review the implementation of this section by the States, and shall invite the Governors of the States to testify before them regarding such implementation. Based on such hearings, such Committees may introduce such legislation as may be appropriate to remedy any problems with the State programs operated pursuant to this section. `SEC. 408. PROHIBITIONS; REQUIREMENTS. `(a) IN GENERAL- `(1) NO ASSISTANCE FOR FAMILIES WITHOUT A MINOR CHILD- A State to which a grant is made under section 403 shall not use any part of the grant to provide assistance to a family-- `(A) unless the family includes-- `(i) a minor child who resides with a custodial parent or other adult caretaker relative of the child; or `(ii) a pregnant individual; and `(B) if the family includes an adult who has received assistance under any State program funded under this part attributable to funds provided by the Federal Government, for 60 months (whether or not consecutive) after the date the State program funded under this part commences (unless an exception described in subparagraph (B), (C), or (D) of paragraph (7) applies). `(2) REDUCTION OR ELIMINATION OF ASSISTANCE FOR NONCOOPERATION IN ESTABLISHING PATERNITY OR OBTAINING CHILD SUPPORT- If the agency responsible for administering the State plan approved under part D determines that an individual is not cooperating with the State in establishing paternity or in establishing, modifying, or enforcing a support order with respect to a child of the individual, and the individual does not qualify for any good cause or other exception established by the State pursuant to section 454(29), then the State-- `(A) shall deduct from the assistance that would otherwise be provided to the family of the individual under the State program funded under this part an amount equal to not less than 25 percent of the amount of such assistance; and `(B) may deny the family any assistance under the State program. `(3) NO ASSISTANCE FOR FAMILIES NOT ASSIGNING CERTAIN SUPPORT RIGHTS TO THE STATE- `(A) IN GENERAL- A State to which a grant is made under section 403 shall require, as a condition of providing assistance to a family under the State program funded under this part, that a member of the family assign to the State any rights the family member may have (on behalf of the family member or of any other person for whom the family member has applied for or is receiving such assistance) to support from any other person, not exceeding the total amount of assistance so provided to the family, which accrue (or have accrued) before the date the family leaves the program, which assignment, on and after the date the family leaves the program, shall not apply with respect to any support (other than support collected pursuant to section 464) which accrued before the family received such assistance and which the State has not collected by-- `(i) September 30, 2000, if the assignment is executed on or after October 1, 1997, and before October 1, 2000; or `(ii) the date the family leaves the program, if the assignment is executed on or after October 1, 2000. `(B) LIMITATION- A State to which a grant is made under section 403 shall not require, as a condition of providing assistance to any family under the State program funded under this part, that a member of the family assign to the State any rights to support described in subparagraph (A) which accrue after the date the family leaves the program. `(4) NO ASSISTANCE FOR TEENAGE PARENTS WHO DO NOT ATTEND HIGH SCHOOL OR OTHER EQUIVALENT TRAINING PROGRAM- A State to which a grant is made under section 403 shall not use any part of the grant to provide assistance to an individual who has not attained 18 years of age, is not married, has a minor child at least 12 weeks of age in his or her care, and has not successfully completed a high-school education (or its equivalent), if the individual does not participate in-- `(A) educational activities directed toward the attainment of a high school diploma or its equivalent; or `(B) an alternative educational or training program that has been approved by the State. `(5) NO ASSISTANCE FOR TEENAGE PARENTS NOT LIVING IN ADULT-SUPERVISED SETTINGS- `(A) IN GENERAL- `(i) REQUIREMENT- Except as provided in subparagraph (B), a State to which a grant is made under section 403 shall not use any part of the grant to provide assistance to an individual described in clause (ii) of this subparagraph if the individual and the minor child referred to in clause (ii)(II) do not reside in a place of residence maintained by a parent, legal guardian, or other adult relative of the individual as such parent's, guardian's, or adult relative's own home. `(ii) INDIVIDUAL DESCRIBED- For purposes of clause (i), an individual described in this clause is an individual who-- `(I) has not attained 18 years of age; and `(II) is not married, and has a minor child in his or her care. `(B) EXCEPTION- `(i) PROVISION OF, OR ASSISTANCE IN LOCATING, ADULT-SUPERVISED LIVING ARRANGEMENT- In the case of an individual who is described in clause (ii), the State agency referred to in section 402(a)(4) shall provide, or assist the individual in locating, a second chance home, maternity home, or other appropriate adult-supervised supportive living arrangement, taking into consideration the needs and concerns of the individual, unless the State agency determines that the individual's current living arrangement is appropriate, and thereafter shall require that the individual and the minor child referred to in subparagraph (A)(ii)(II) reside in such living arrangement as a condition of the continued receipt of assistance under the State program funded under this part attributable to funds provided by the Federal Government (or in an alternative appropriate arrangement, should circumstances change and the current arrangement cease to be appropriate). `(ii) INDIVIDUAL DESCRIBED- For purposes of clause (i), an individual is described in this clause if the individual is described in subparagraph (A)(ii), and-- `(I) the individual has no parent, legal guardian, or other appropriate adult relative described in subclause (II) of his or her own who is living or whose whereabouts are known; `(II) no living parent, legal guardian, or other appropriate adult relative, who would otherwise meet applicable State criteria to act as the individual's legal guardian, of such individual allows the individual to live in the home of such parent, guardian, or relative; `(III) the State agency determines that-- `(aa) the individual or the minor child referred to in subparagraph (A)(ii)(II) is being or has been subjected to serious physical or emotional harm, sexual abuse, or exploitation in the residence of the individual's own parent or legal guardian; or `(bb) substantial evidence exists of an act or failure to act that presents an imminent or serious harm if the individual and the minor child lived in the same residence with the individual's own parent or legal guardian; or `(IV) the State agency otherwise determines that it is in the best interest of the minor child to waive the requirement of subparagraph (A) with respect to the individual or the minor child. `(iii) SECOND-CHANCE HOME- For purposes of this subparagraph, the term `second-chance home' means an entity that provides individuals described in clause (ii) with a supportive and supervised living arrangement in which such individuals are required to learn parenting skills, including child development, family budgeting, health and nutrition, and other skills to promote their long-term economic independence and the well-being of their children. `(6) NO MEDICAL SERVICES- `(A) IN GENERAL- A State to which a grant is made under section 403 shall not use any part of the grant to provide medical services. `(B) EXCEPTION FOR PREPREGNANCY FAMILY PLANNING SERVICES- As used in subparagraph (A), the term `medical services' does not include prepregnancy family planning services. `(7) NO ASSISTANCE FOR MORE THAN 5 YEARS- `(A) IN GENERAL- A State to which a grant is made under section 403 shall not use any part of the grant to provide assistance to a family that includes an adult who has received assistance under any State program funded under this part attributable to funds provided by the Federal Government, for 60 months (whether or not consecutive) after the date the State program funded under this part commences, subject to this paragraph. `(B) MINOR CHILD EXCEPTION- In determining the number of months for which an individual who is a parent or pregnant has received assistance under the State program funded under this part, the State shall disregard any month for which such assistance was provided with respect to the individual and during which the individual was-- `(i) a minor child; and `(ii) not the head of a household or married to the head of a household. `(C) HARDSHIP EXCEPTION- `(i) IN GENERAL- The State may exempt a family from the application of subparagraph (A) by reason of hardship or if the family includes an individual who has been battered or subjected to extreme cruelty. `(ii) LIMITATION- The number of families with respect to which an exemption made by a State under clause (i) is in effect for a fiscal year shall not exceed 20 percent of the average monthly number of families to which assistance is provided under the State program funded under this part. `(iii) BATTERED OR SUBJECT TO EXTREME CRUELTY DEFINED- For purposes of clause (i), an individual has been battered or subjected to extreme cruelty if the individual has been subjected to-- `(I) physical acts that resulted in, or threatened to result in, physical injury to the individual; `(II) sexual abuse; `(III) sexual activity involving a dependent child; `(IV) being forced as the caretaker relative of a dependent child to engage in nonconsensual sexual acts or activities; `(V) threats of, or attempts at, physical or sexual abuse; `(VI) mental abuse; or `(VII) neglect or deprivation of medical care. `(D) DISREGARD OF MONTHS OF ASSISTANCE RECEIVED BY ADULT WHILE LIVING ON AN INDIAN RESERVATION OR IN AN ALASKAN NATIVE VILLAGE WITH 50 PERCENT UNEMPLOYMENT- In determining the number of months for which an adult has received assistance under the State program funded under this part, the State shall disregard any month during which the adult lived on an Indian reservation or in an Alaskan Native village if, during the month-- `(i) at least 1,000 individuals were living on the reservation or in the village ; and `(ii) at least 50 percent of the adults living on the reservation or in the village were unemployed. `(E) RULE OF INTERPRETATION- Subparagraph (A) shall not be interpreted to require any State to provide assistance to any individual for any period of time under the State program funded under this part. `(F) RULE OF INTERPRETATION- This part shall not be interpreted to prohibit any State from expending State funds not originating with the Federal Government on benefits for children or families that have become ineligible for assistance under the State program funded under this part by reason of subparagraph (A). `(8) DENIAL OF ASSISTANCE FOR 10 YEARS TO A PERSON FOUND TO HAVE FRAUDULENTLY MISREPRESENTED RESIDENCE IN ORDER TO OBTAIN ASSISTANCE IN 2 OR MORE STATES- A State to which a grant is made under section 403 shall not use any part of the grant to provide cash assistance to an individual during the 10-year period that begins on the date the individual is convicted in Federal or State court of having made a fraudulent statement or representation with respect to the place of residence of the individual in order to receive assistance simultaneously from 2 or more States under programs that are funded under this title, title XIX, or the Food Stamp Act of 1977, or benefits in 2 or more States under the supplemental security income program under title XVI. The preceding sentence shall not apply with respect to a conviction of an individual, for any month beginning after the President of the United States grants a pardon with respect to the conduct which was the subject of the conviction. `(9) DENIAL OF ASSISTANCE FOR FUGITIVE FELONS AND PROBATION AND PAROLE VIOLATORS- `(A) IN GENERAL- A State to which a grant is made under section 403 shall not use any part of the grant to provide assistance to any individual who is-- `(i) fleeing to avoid prosecution, or custody or confinement after conviction, under the laws of the place from which the individual flees, for a crime, or an attempt to commit a crime, which is a felony under the laws of the place from which the individual flees, or which, in the case of the State of New Jersey, is a high misdemeanor under the laws of such State; or `(ii) violating a condition of probation or parole imposed under Federal or State law. The preceding sentence shall not apply with respect to conduct of an individual, for any month beginning after the President of the United States grants a pardon with respect to the conduct. `(B) EXCHANGE OF INFORMATION WITH LAW ENFORCEMENT AGENCIES- If a State to which a grant is made under section 403 establishes safeguards against the use or disclosure of information about applicants or recipients of assistance under the State program funded under this part, the safeguards shall not prevent the State agency administering the program from furnishing a Federal, State, or local law enforcement officer, upon the request of the officer, with the current address of any recipient if the officer furnishes the agency with the name of the recipient and notifies the agency that-- `(i) the recipient-- `(I) is described in subparagraph (A); or `(II) has information that is necessary for the officer to conduct the official duties of the officer; and `(ii) the location or apprehension of the recipient is within such official duties. `(10) DENIAL OF ASSISTANCE FOR MINOR CHILDREN WHO ARE ABSENT FROM THE HOME FOR A SIGNIFICANT PERIOD- `(A) IN GENERAL- A State to which a grant is made under section 403 shall not use any part of the grant to provide assistance for a minor child who has been, or is expected by a parent (or other caretaker relative) of the child to be, absent from the home for a period of 45 consecutive days or, at the option of the State, such period of not less than 30 and not more than 180 consecutive days as the State may provide for in the State plan submitted pursuant to section 402. `(B) STATE AUTHORITY TO ESTABLISH GOOD CAUSE EXCEPTIONS- The State may establish such good cause exceptions to subparagraph (A) as the State considers appropriate if such exceptions are provided for in the State plan submitted pursuant to section 402. `(C) DENIAL OF ASSISTANCE FOR RELATIVE WHO FAILS TO NOTIFY STATE AGENCY OF ABSENCE OF CHILD- A State to which a grant is made under section 403 shall not use any part of the grant to provide assistance for an individual who is a parent (or other caretaker relative) of a minor child and who fails to notify the agency administering the State program funded under this part of the absence of the minor child from the home for the period specified in or provided for pursuant to subparagraph (A), by the end of the 5-day period that begins with the date that it becomes clear to the parent (or relative) that the minor child will be absent for such period so specified or provided for. `(11) MEDICAL ASSISTANCE REQUIRED TO BE PROVIDED FOR CERTAIN FAMILIES HAVING EARNINGS FROM EMPLOYMENT OR CHILD SUPPORT- `(A) EARNINGS FROM EMPLOYMENT- A State to which a grant is made under section 403 and which has a State plan approved under title XIX shall provide that in the case of a family that is treated (under section 1931(b)(1)(A) for purposes of title XIX) as receiving aid under a State plan approved under this part (as in effect on July 16, 1996), that would become ineligible for such aid because of hours of or income from employment of the caretaker relative (as defined under this part as in effect on such date) or because of section 402(a)(8)(B)(ii)(II) (as so in effect), and that was so treated as receiving such aid in at least 3 of the 6 months immediately preceding the month in which such ineligibility begins, the family shall remain eligible for medical assistance under the State's plan approved under title XIX for an extended period or periods as provided in section 1925 or 1902(e)(1) (as applicable), and that the family will be appropriately notified of such extension as required by section 1925(a)(2). `(B) CHILD SUPPORT- A State to which a grant is made under section 403 and which has a State plan approved under title XIX shall provide that in the case of a family that is treated (under section 1931(b)(1)(A) for purposes of title XIX) as receiving aid under a State plan approved under this part (as in effect on July 16, 1996), that would become ineligible for such aid as a result (wholly or partly) of the collection of child or spousal support under part D and that was so treated as receiving such aid in at least 3 of the 6 months immediately preceding the month in which such ineligibility begins, the family shall remain eligible for medical assistance under the State's plan approved under title XIX for an extended period or periods as provided in section 1931(c)(1). `(b) INDIVIDUAL RESPONSIBILITY PLANS- `(1) ASSESSMENT- The State agency responsible for administering the State program funded under this part shall make an initial assessment of the skills, prior work experience, and employability of each recipient of assistance under the program who-- `(A) has attained 18 years of age; or `(B) has not completed high school or obtained a certificate of high school equivalency, and is not attending secondary school. `(2) CONTENTS OF PLANS- `(A) IN GENERAL- On the basis of the assessment made under subsection (a) with respect to an individual, the State agency, in consultation with the individual, may develop an individual responsibility plan for the individual, which-- `(i) sets forth an employment goal for the individual and a plan for moving the individual immediately into private sector employment; `(ii) sets forth the obligations of the individual, which may include a requirement that the individual attend school, maintain certain grades and attendance, keep school age children of the individual in school, immunize children, attend parenting and money management classes, or do other things that will help the individual become and remain employed in the private sector; `(iii) to the greatest extent possible is designed to move the individual into whatever private sector employment the individual is capable of handling as quickly as possible, and to increase the responsibility and amount of work the individual is to handle over time; `(iv) describes the services the State will provide the individual so that the individual will be able to obtain and keep employment in the private sector, and describe the job counseling and other services that will be provided by the State; and `(v) may require the individual to undergo appropriate substance abuse treatment. `(B) TIMING- The State agency may comply with paragraph (1) with respect to an individual-- `(i) within 90 days (or, at the option of the State, 180 days) after the effective date of this part, in the case of an individual who, as of such effective date, is a recipient of aid under the State plan approved under part A (as in effect immediately before such effective date); or `(ii) within 30 days (or, at the option of the State, 90 days) after the individual is determined to be eligible for such assistance, in the case of any other individual. `(3) PENALTY FOR NONCOMPLIANCE BY INDIVIDUAL- In addition to any other penalties required under the State program funded under this part, the State may reduce, by such amount as the State considers appropriate, the amount of assistance otherwise payable under the State program to a family that includes an individual who fails without good cause to comply with an individual responsibility plan signed by the individual. `(4) STATE DISCRETION- The exercise of the authority of this subsection shall be within the sole discretion of the State. `(c) NONDISCRIMINATION PROVISIONS- The following provisions of law shall apply to any program or activity which receives funds provided under this part: `(1) The Age Discrimination Act of 1975 (42 U.S.C. 6101 et seq.). `(2) Section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 794). `(3) The Americans with Disabilities Act of 1990 (42 U.S.C. 12101 et seq.). `(4) Title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d et seq.). `(d) ALIENS- For special rules relating to the treatment of aliens, see section 402 of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996. `SEC. 409. PENALTIES. `(a) IN GENERAL- Subject to this section: `(1) USE OF GRANT IN VIOLATION OF THIS PART- `(A) GENERAL PENALTY- If an audit conducted under chapter 75 of title 31, United States Code, finds that an amount paid to a State under section 403 for a fiscal year has been used in violation of this part, the Secretary shall reduce the grant payable to the State under section 403(a)(1) for the immediately succeeding fiscal year quarter by the amount so used. `(B) ENHANCED PENALTY FOR INTENTIONAL VIOLATIONS- If the State does not prove to the satisfaction of the Secretary that the State did not intend to use the amount in violation of this part, the Secretary shall further reduce the grant payable to the State under section 403(a)(1) for the immediately succeeding fiscal year quarter by an amount equal to 5 percent of the State family assistance grant. `(2) FAILURE TO SUBMIT REQUIRED REPORT- `(A) IN GENERAL- If the Secretary determines that a State has not, within 1 month after the end of a fiscal quarter, submitted the report required by section 411(a) for the quarter, the Secretary shall reduce the grant payable to the State under section 403(a)(1) for the immediately succeeding fiscal year by an amount equal to 4 percent of the State family assistance grant. `(B) RESCISSION OF PENALTY- The Secretary shall rescind a penalty imposed on a State under subparagraph (A) with respect to a report if the State submits the report before the end of the fiscal quarter that immediately succeeds the fiscal quarter for which the report was required. `(3) FAILURE TO SATISFY MINIMUM PARTICIPATION RATES- `(A) IN GENERAL- If the Secretary determines that a State to which a grant is made under section 403 for a fiscal year has failed to comply with section 407(a) for the fiscal year, the Secretary shall reduce the grant payable to the State under section 403(a)(1) for the immediately succeeding fiscal year by an amount equal to not more than the applicable percentage of the State family assistance grant. `(B) APPLICABLE PERCENTAGE DEFINED- As used in subparagraph (A), the term `applicable percentage' means, with respect to a State-- `(i) if a penalty was not imposed on the State under subparagraph (A) for the immediately preceding fiscal year, 5 percent; or `(ii) if a penalty was imposed on the State under subparagraph (A) for the immediately preceding fiscal year, the lesser of-- `(I) the percentage by which the grant payable to the State under section 403(a)(1) was reduced for such preceding fiscal year, increased by 2 percentage points; or `(II) 21 percent. `(C) PENALTY BASED ON SEVERITY OF FAILURE- The Secretary shall impose reductions under subparagraph (A) with respect to a fiscal year based on the degree of noncompliance, and may reduce the penalty if the noncompliance is due to circumstances that caused the State to become a needy State (as defined in section 403(b)(6)) during the fiscal year. `(4) FAILURE TO PARTICIPATE IN THE INCOME AND ELIGIBILITY VERIFICATION SYSTEM- If the Secretary determines that a State program funded under this part is not participating during a fiscal year in the income and eligibility verification system required by section 1137, the Secretary shall reduce the grant payable to the State under section 403(a)(1) for the immediately succeeding fiscal year by an amount equal to not more than 2 percent of the State family assistance grant. `(5) FAILURE TO COMPLY WITH PATERNITY ESTABLISHMENT AND CHILD SUPPORT ENFORCEMENT REQUIREMENTS UNDER PART D- Notwithstanding any other provision of this Act, if the Secretary determines that the State agency that administers a program funded under this part does not enforce the penalties requested by the agency administering part D against recipients of assistance under the State program who fail to cooperate in establishing paternity or in establishing, modifying, or enforcing a child support order in accordance with such part and who do not qualify for any good cause or other exception established by the State under section 454(29), the Secretary shall reduce the grant payable to the State under section 403(a)(1) for the immediately succeeding fiscal year (without regard to this section) by not more than 5 percent. `(6) FAILURE TO TIMELY REPAY A FEDERAL LOAN FUND FOR STATE WELFARE PROGRAMS- If the Secretary determines that a State has failed to repay any amount borrowed from the Federal Loan Fund for State Welfare Programs established under section 406 within the period of maturity applicable to the loan, plus any interest owed on the loan, the Secretary shall reduce the grant payable to the State under section 403(a)(1) for the immediately succeeding fiscal year quarter (without regard to this section) by the outstanding loan amount, plus the interest owed on the outstanding amount. The Secretary shall not forgive any outstanding loan amount or interest owed on the outstanding amount. `(7) FAILURE OF ANY STATE TO MAINTAIN CERTAIN LEVEL OF HISTORIC EFFORT- `(A) IN GENERAL- The Secretary shall reduce the grant payable to the State under section 403(a)(1) for fiscal year 1998, 1999, 2000, 2001, 2002, or 2003 by the amount (if any) by which qualified State expenditures for the then immediately preceding fiscal year are less than the applicable percentage of historic State expenditures with respect to such preceding fiscal year. `(B) DEFINITIONS- As used in this paragraph: `(i) QUALIFIED STATE EXPENDITURES- `(I) IN GENERAL- The term `qualified State expenditures' means, with respect to a State and a fiscal year, the total expenditures by the State during the fiscal year, under all State programs, for any of the following with respect to eligible families: `(aa) Cash assistance. `(bb) Child care assistance. `(cc) Educational activities designed to increase self-sufficiency, job training, and work, excluding any expenditure for public education in the State except expenditures which involve the provision of services or assistance to a member of an eligible family which is not generally available to persons who are not members of an eligible family. `(dd) Administrative costs in connection with the matters described in items (aa), (bb), (cc), and (ee), but only to the extent that such costs do not exceed 15 percent of the total amount of qualified State expenditures for the fiscal year. `(ee) Any other use of funds allowable under section 404(a)(1). `(II) EXCLUSION OF TRANSFERS FROM OTHER STATE AND LOCAL PROGRAMS- Such term does not include expenditures under any State or local program during a fiscal year, except to the extent that-- `(aa) the expenditures exceed the amount expended under the State or local program in the fiscal year most recently ending before the date of the enactment of this part; or `(bb) the State is entitled to a payment under former section 403 (as in effect immediately before such date of enactment) with respect to the expenditures. `(III) ELIGIBLE FAMILIES- As used in subclause (I), the term `eligible families' means families eligible for assistance under the State program funded under this part, and families that would be eligible for such assistance but for the application of section 408(a)(7) of this Act or section 402 of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996. `(ii) APPLICABLE PERCENTAGE- The term `applicable percentage' means for fiscal years 1997 through 2002, 80 percent (or, if the State meets the requirements of section 407(a) for the fiscal year, 75 percent) reduced (if appropriate) in accordance with subparagraph (C)(ii). `(iii) HISTORIC STATE EXPENDITURES- The term `historic State expenditures' means, with respect to a State, the lesser of-- `(I) the expenditures by the State under parts A and F (as in effect during fiscal year 1994) for fiscal year 1994; or `(II) the amount which bears the same ratio to the amount described in subclause (I) as-- `(aa) the State family assistance grant, plus the total amount required to be paid to the State under former section 403 for fiscal year 1994 with respect to amounts expended by the State for child care under subsection (g) or (i) of section 402 (as in effect during fiscal year 1994); bears to `(bb) the total amount required to be paid to the State under former section 403 (as in effect during fiscal year 1994) for fiscal year 1994. Such term does not include any expenditures under the State plan approved under part A (as so in effect) on behalf of individuals covered by a tribal family assistance plan approved under section 412, as determined by the Secretary. `(iv) EXPENDITURES BY THE STATE- The term `expenditures by the State' does not include-- `(I) any expenditures from amounts made available by the Federal Government; `(II) any State funds expended for the medicaid program under title XIX; `(III) any State funds which are used to match Federal funds; or `(IV) any State funds which are expended as a condition of receiving Federal funds under Federal programs other than under this part. Notwithstanding subclause (IV) of the preceding sentence, such term includes expenditures by a State for child care in a fiscal year to the extent that the total amount of such expenditures does not exceed an amoun