‘‘(1) 50 percent for fiscal year 2004; 
‘‘(2) 55 percent for fiscal year 2005; 
‘‘(3) 60 percent for fiscal year 2006; 
‘‘(4) 65 percent for fiscal year 2007; and 
‘‘(5) 70 percent for fiscal year 2008 and each 
succeeding fiscal year. 
‘‘(b) CALCULATION OF PARTICIPATION RATES.—
‘‘(1) AVERAGE MONTHLY RATE.—For purposes 
of subsection (a), the participation rate of a State 
for a fiscal year is the average of the participation 
rates of the State for each month in the fiscal year. 
‘‘(2) MONTHLY PARTICIPATION RATES; INCOR-
PORATION OF 40-HOUR WORK WEEK STANDARD.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), the participation rate of a State for 
a month is—
‘‘(i) the total number of countable 
hours (as defined in subsection (c)) with 
respect to the counted families for the 
State for the month; divided by 
‘‘(ii) 160 multiplied by the number of 
counted families for the State for the 
month. 
‘‘(B) COUNTED FAMILIES DEFINED.—
‘‘(i) IN GENERAL.—In subparagraph 
(A), the term ‘counted family’ means, with 
respect to a State and a month, a family 
that includes a work-eligible individual and 
that receives assistance in the month under 
the State program funded under this part, 
subject to clause (ii). 
‘‘(ii) STATE
OPTION
TO
EXCLUDE 
CERTAIN
FAMILIES.—At the option of a 
State, the term ‘counted family’ shall not 
include—
‘‘(I) a family in the first month 
for which the family receives assist-
ance from a State program funded 
under this part on the basis of the 
most recent application for such as-
sistance; or 
‘‘(II) on a case-by-case basis, a 
family in which the youngest child has 
not attained 12 months of age. 
‘‘(iii) STATE OPTION TO INCLUDE IN-
DIVIDUALS RECEIVING ASSISTANCE UNDER 
A
TRIBAL
FAMILY
ASSISTANCE
PLAN
OR 
TRIBAL WORK PROGRAM.—At the option of 
a State, the term ‘counted family’ may in-
clude families in the State that are receiv-
ing assistance under a tribal family assist-
ance plan approved under section 412 or 
under a tribal work program to which 
funds are provided under this part. 
‘‘(C) WORK-ELIGIBLE
INDIVIDUAL
DE-
FINED.—In this section, the term ‘work-eligible 
individual’ means an individual—
‘‘(i) who is married or a single head 
of household; and 
‘‘(ii) whose needs are (or, but for 
sanctions under this part that have been in 
effect for more than 3 months (whether or 
not consecutive) in the preceding 12 
months or under part D, would be) in-
cluded in determining the amount of cash 
assistance to be provided to the family 
under the State program funded under this 
part.’’. 
(c) RECALIBRATION
OF
CASELOAD
REDUCTION 
CREDIT.—
(1) IN GENERAL.—Section 407(b)(3)(A)(ii) (42 
U.S.C. 607(b)(3)(A)(ii)) is amended to read as fol-
lows:
‘‘(ii) the average monthly number of 
families that received assistance under the 
State program funded under this part dur-
ing the base year.’’. 
(2) 
CONFORMING
AMENDMENT.—Section 
407(b)(3)(B) (42 U.S.C. 607(b)(3)(B)) is amended 
by striking ‘‘and eligibility criteria’’ and all that fol-
lows through the close parenthesis and inserting 
‘‘and the eligibility criteria in effect during the then 
applicable base year’’. 
(3) BASE YEAR DEFINED.—Section 407(b)(3) 
(42 U.S.C. 607(b)(3)) is amended by adding at the 
end the following: 
‘‘(C) BASE YEAR DEFINED.—In this para-
graph, the term ‘base year’ means, with respect 
to a fiscal year—
‘‘(I) if the fiscal year is fiscal 
year 2004, fiscal year 1996; 
‘‘(II) if the fiscal year is fiscal 
year 2005, fiscal year 1998; 
‘‘(III) if the fiscal year is fiscal 
year 2006, fiscal year 2001; or 
‘‘(IV) if the fiscal year is fiscal 
year 2007 or any succeeding fiscal