‘‘(2) the term ‘overall performance in child sup-
port enforcement’ means a measure or measures of
the effectiveness of the State agency in a fiscal year
which takes into account factors including—
‘‘(A) the percentage of cases requiring a
child support order in which such an order was
established;
‘‘(B) the percentage of cases in which child
support is being paid;
‘‘(C) the ratio of child support collected to
child support due; and
‘‘(D) the cost-effectiveness of the State
program, as determined in accordance with
standards established by the Secretary in regu-
lations.’’.
(b) ADJUSTMENT OF PAYMENTS UNDER PART D OF
TITLE IV.—Section 455(a)(2) (42 U.S.C. 655(a)(2)), as
amended by section 111(a) of this Act, is amended—
(1) by striking the period at the end of sub-
paragraph (C)(ii) and inserting a comma; and
(2) by adding after and below subparagraph
(C), flush with the left margin of the subsection, the
following:
‘‘increased by the incentive adjustment factor (if any) de-
termined by the Secretary pursuant to section 458.’’.
(c) CONFORMING AMENDMENTS.—Section 454(22)
(42 U.S.C. 654(22)) is amended—
(1) by striking ‘‘incentive payments’’ the first
place it appears and inserting ‘‘incentive adjust-
ments’’; and
(2) by striking ‘‘any such incentive payments
made to the State for such period’’ and inserting
‘‘any increases in Federal payments to the State re-
sulting from such incentive adjustments’’.
(d) CALCULATION OF IV–D PATERNITY ESTABLISH-
MENT PERCENTAGE.—(1) Section 452(g)(1) (42 U.S.C.
652(g)(1)) is amended in the matter preceding subpara-
graph (A) by inserting ‘‘its overall performance in child
support enforcement is satisfactory (as defined in section
458(b) and regulations of the Secretary), and’’ after
‘‘1994,’’.
(2) Section 452(g)(2) (42 U.S.C. 652(g)(2)) is
amended—
(A) in subparagraph (A), in the matter preced-
ing clause (i)—
(i) by striking ‘‘paternity establishment
percentage’’ and inserting ‘‘IV–D paternity es-
tablishment percentage’’; and
(ii) by striking ‘‘(or all States, as the case
may be)’’;
(B) in subparagraph (A)(i), by striking ‘‘during
the fiscal year’’;
(C) in subparagraph (A)(ii)(I), by striking ‘‘as
of the end of the fiscal year’’ and inserting ‘‘in the
fiscal year or, at the option of the State, as of the
end of such year’’;
(D) in subparagraph (A)(ii)(II), by striking ‘‘or
(E) as of the end of the fiscal year’’ and inserting
‘‘in the fiscal year or, at the option of the State, as
of the end of such year’’;
(E) in subparagraph (A)(iii)—
(i) by striking ‘‘during the fiscal year’’;
and
(ii) by striking ‘‘and’’ at the end; and
(F) in the matter following subparagraph (A)—
(i) by striking ‘‘who were born out of wed-
lock during the immediately preceding fiscal
year’’ and inserting ‘‘born out of wedlock’’;
(ii) by striking ‘‘such preceding fiscal
year’’ both places it appears and inserting ‘‘the
preceding fiscal year’’; and
(iii) by striking ‘‘or (E)’’ the second place
it appears.
(3) Section 452(g)(3) (42 U.S.C. 652(g)(3)) is
amended—
(A) by striking subparagraph (A) and redesig-
nating subparagraphs (B) and (C) as subparagraphs
(A) and (B), respectively;
(B) in subparagraph (A), as redesignated, by
striking ‘‘the percentage of children born out-of-wed-
lock in the State’’ and inserting ‘‘the percentage of
children in the State who are born out of wedlock
or for whom support has not been established’’; and
(C) in subparagraph (B), as redesignated—
(i) by inserting ‘‘and overall performance
in child support enforcement’’ after ‘‘paternity
establishment percentages’’; and
(ii) by inserting ‘‘and securing support’’
before the period.
(e) REDUCTION OF PAYMENTS UNDER PART D OF
TITLE IV.—
(1) NEW
REQUIREMENTS.—Section 455 (42
U.S.C. 655) is amended by inserting after sub-
section (b) the following:
‘‘(c)(1) If the Secretary finds, with respect to a State
program under this part in a fiscal year beginning on or
after October 1, 1997—
‘‘(A)(i) on the basis of data submitted by a
State pursuant to section 454(15)(B), that the State
program in such fiscal year failed to achieve the IV–
D paternity establishment percentage (as defined in
section 452(g)(2)(A)) or the appropriate level of
overall performance in child support enforcement (as
defined in section 458(b)(2)), or to meet other per-
formance measures that may be established by the
Secretary, or
‘‘(ii) on the basis of an audit or audits of such
State 
data 
conducted 
pursuant 
to 
section
452(a)(4)(C), that the State data submitted pursu-
ant to section 454(15)(B) is incomplete or unreli-
able; and
‘‘(B) that, with respect to the succeeding fiscal
year—
‘‘(i) the State failed to take sufficient cor-
rective action to achieve the appropriate per-
formance levels as described in subparagraph
(A)(i) of this paragraph, or
‘‘(ii) the data submitted by the State pur-
suant to section 454(15)(B) is incomplete or
unreliable,
the amounts otherwise payable to the State under this
part for quarters following the end of such succeeding fis-
cal year, prior to quarters following the end of the first
quarter throughout which the State program is in compli-
ance with such performance requirement, shall be reduced
by the percentage specified in paragraph (2).
‘‘(2) The reductions required under paragraph (1)
shall be—
‘‘(A) not less than 6 nor more than 8 percent,
or
‘‘(B) not less than 8 nor more than 12 percent,
if the finding is the second consecutive finding made
pursuant to paragraph (1), or
‘‘(C) not less than 12 nor more than 15 per-
cent, if the finding is the third or a subsequent con-
secutive such finding.
‘‘(3) For purposes of this subsection, section
402(a)(27), and section 452(a)(4), a State which is deter-
mined as a result of an audit to have submitted incomplete
or unreliable data pursuant to section 454(15)(B), shall
be determined to have submitted adequate data if the Sec-
retary determines that the extent of the incompleteness
or unreliability of the data is of a technical nature which
does not adversely affect the determination of the level of
the State’s performance.’’.
(2) CONFORMING AMENDMENTS.—
(A) Section 403 (42 U.S.C. 603) is amend-
ed by striking subsection (h).
(B) 
Section 
452(a)(4) 
(42 
U.S.C.
652(a)(4)) is amended by striking ‘‘403(h)’’
each place such term appears and inserting
‘‘455(c)’’.
(C) Subsections (d)(3)(A), (g)(1), and
(g)(3)(A) of section 452 (42 U.S.C. 652) are
each amended by striking ‘‘403(h)’’ and insert-
ing ‘‘455(c)’’.
(f) EFFECTIVE DATES.—
(1) 
INCENTIVE
ADJUSTMENTS.—(A) 
The
amendments made by subsections (a), (b), and (c)
shall become effective October 1, 1997, except to the
extent provided in subparagraph (B).
(B) Section 458 of the Social Security Act, as
in effect prior to the enactment of this section, shall
be effective for purposes of incentive payments to
States for fiscal years prior to fiscal year 1999.
(2) PENALTY REDUCTIONS.—(A) The amend-
ments made by subsection (d) shall become effective
with respect to calendar quarters beginning on and
after the date of enactment of this Act.
(B) The amendments made by subsection (e)
shall become effective with respect to calendar quar-
ters beginning on and after the date one year after
the date of enactment of this Act.