‘‘(aa) the State family as-
sistance grant for the fiscal year
immediately preceding the fiscal
year specified in subparagraph
(A), plus the total amount re-
quired to be paid to the State
under former section 403 for fis-
cal year 1994 with respect to
amounts expended by the State
for child care under subsection
(g) or (i) of section 402 (as in ef-
fect during fiscal year 1994);
bears to
‘‘(bb) the total amount re-
quired 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 expendi-
tures under the State plan approved under
part A (as so in effect) on behalf of indi-
viduals covered by a tribal family assist-
ance 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 Fed-
eral Government;
‘‘(II) State funds expended for
the medicaid program under title
XIX; or
‘‘(III) any State funds which are
used to match Federal funds or are
expended as a condition of receiving
Federal funds under Federal pro-
grams other than under this part.
‘‘(C) PERFORMANCE-BASED ADJUSTMENTS
TO APPLICABLE PERCENTAGE.—
‘‘(i) INCREASE IN MAINTENANCE OF
EFFORT
THRESHOLD
FOR
FAILURE
TO
MEET PARTICIPATION RATES.—If the Sec-
retary determines that a State has failed
to achieve the participation rate required
by section 407 for a fiscal year, the Sec-
retary shall increase the applicable per-
centage for the State for the immediately
succeeding fiscal year by not more than 5
percentage points. In determining the
amount of any such increase, the Secretary
shall take into account any increase in the
number of persons served by the State pro-
gram and any increase in the unemploy-
ment rate of the State, in accordance with
regulations which the Secretary shall pre-
scribe.
‘‘(ii) REDUCTION IN MAINTENANCE OF
EFFORT THRESHOLD FOR HIGH PERFORM-
ANCE STATES.—
‘‘(I) CRITERIA.—The Secretary
shall, by regulation, establish meas-
ures of the effectiveness of the State
program funded under this part in
moving recipients of assistance under
the 
program 
into 
full-time
unsubsidized employment. In develop-
ing the regulations, the Secretary
shall take into account the length of
time former recipients of assistance
under the program remain employed,
the earnings of such former recipients
who obtain private sector employment,
the total State caseload under the
program, and the rate of unemploy-
ment in the State.
‘‘(II) REDUCTION
OF
THRESH-
OLD.—The Secretary shall reduce the
applicable percentage for a State for a
fiscal year by not more than 5 per-
centage points if the Secretary deter-
mines that the State achieved the par-
ticipation rate required by section 407
for the immediately preceding fiscal
year and exceeded such performance
threshold as the Secretary may estab-
lish under subclause (I) of this clause.
‘‘(6) SUBSTANTIAL NONCOMPLIANCE OF STATE
CHILD SUPPORT ENFORCEMENT PROGRAM WITH RE-
QUIREMENTS OF PART D.—
‘‘(A) IN
GENERAL.—If a State program
operated under part D is found as a result of
a review conducted under section 452(a)(4) not
to have complied substantially with the require-
ments of such part for any quarter, and the
Secretary determines that the program is not
complying substantially with such requirements
at the time the finding is made, the Secretary
shall reduce the grant payable to the State
under section 403(a)(1) for the quarter and
each subsequent quarter that ends before the
1st quarter throughout which the program is
found to be in substantial compliance with such
requirements by—
‘‘(i) not less than 1 nor more than 2
percent;
‘‘(ii) not less than 2 nor more than 3
percent, if the finding is the 2nd consecu-
tive such finding made as a result of such
a review; or
‘‘(iii) not less than 3 nor more than 5
percent, if the finding is the 3rd or a sub-
sequent consecutive such finding made as a
result of such a review.
‘‘(B) DISREGARD
OF
NONCOMPLIANCE
WHICH IS OF A TECHNICAL NATURE.—For pur-
poses of subparagraph (A) of this paragraph
and section 452(a)(4), a State which is not in
full compliance with the requirements of this
part shall be determined to be in substantial
compliance with such requirements only if the
Secretary determines that any noncompliance
with such requirements is of a technical nature
which does not adversely affect the performance
of the State’s program operated under part D.
‘‘(7) FAILURE OF STATE RECEIVING AMOUNTS
FROM CONTINGENCY FUND TO MAINTAIN 100 PER-
CENT OF HISTORIC EFFORT.—If, at the end of any
fiscal year during which amounts from the Contin-
gency Fund for State Welfare Programs have been
paid to a State, the Secretary finds that the State
has failed, during the fiscal year, to expend under
the State program funded under this part an
amount equal to at least 100 percent of the level of
historic State expenditures (as defined in paragraph
(7)(B)(iii) of this subsection) with respect to the fis-
cal year, the Secretary shall reduce the grant pay-
able to the State under section 403(a)(1) for the im-
mediately succeeding fiscal year by the total of the
amounts so paid to the State.
‘‘(8) FAILURE TO EXPEND ADDITIONAL STATE
FUNDS
TO
REPLACE
GRANT
REDUCTIONS.—If the
grant payable to a State under section 403(a)(1) for
a fiscal year is reduced by reason of this subsection,
the State shall, during the immediately succeeding
fiscal year, expend under the State program funded
under this part an amount equal to the total amount
of such reductions.