PERFORMANCE-BASED INCENTIVES AND PENALTIES.

SEC. 341. PERFORMANCE-BASED INCENTIVES AND PENALTIES. (a) Development of New System.— The Secretary of Health and Human Services, in consultation with State directors of programs under part D of title IV of the Social Security Act, shall develop a new incentive system to replace, in a revenue neutral manner, the system under section 458 of such Act. The new system shall provide additional payments to any State based on such State’s performance under such a program. Not later than March 1, 1997, the Secretary shall report on the new system to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate. (b) Conforming Amendments to Present System.— Section 458 (42 U.S.C. 658) is amended— (1) in subsection (a), by striking “aid to families with dependent children under a State plan approved under part A of this title” and inserting “assistance under a program funded under part A”; (2) in subsection (b)(1)(A), by striking “section 402(a)(26)” and inserting “section 408(a)(4)”; (3) in subsections (b) and (c)— 110 STAT. 2232 (A) by striking “AFDC collections” each place it appears and inserting “title IV–A collections”, and (B) by striking “non-AFDC collections” each place it appears and inserting “non-title IV–A collections”; and (4) in subsection (c), by striking “combined AFDC/non-AFDC administrative costs” both places it appears and inserting “combined title IV–A/non-title IV–A administrative costs”. (c) Calculation of Paternity Establishment Percentage.— (1) Section 452(g)(1)(A) (42 U.S.C. 652(g)(1)(A)) is amended by striking “75” and inserting “90”. (2) Section 452(g)(1) (42 U.S.C. 652(g)(1)) is amended— (A) by redesignating subparagraphs (B) through (E) as subparagraphs (C) through (F), respectively, and by inserting after subparagraph (A) the following new subparagraph: “(B) for a State with a paternity establishment percentage of not less than 75 percent but less than 90 percent for such fiscal year, the paternity establishment percentage of the State for the immediately preceding fiscal year plus 2 percentage points;”; and (B) by adding at the end the following new flush sentence: “In determining compliance under this section, a State may use as its paternity establishment percentage either the State’s IV–D paternity establishment percentage (as defined in paragraph (2)(A)) or the State’s statewide paternity establishment percentage (as defined in paragraph (2)(B)). . (3) Section 452(g)(2) (42 U.S.C. 652(g)(2)) is amended— (A) in subparagraph (A)— (i) in the matter preceding clause (i)— (I) by striking “paternity establishment percentage” and inserting “IV–D paternity establishment percentage”; and (II) by striking “(or all States, as the case may be)”; and (ii) by striking “and” at the end; and (B) by redesignating subparagraph (B) as subparagraph (C) and by inserting after subparagraph (A) the following new subparagraph: “(B) the term ‘statewide paternity establishment percentage’ means, with respect to a State for a fiscal year, the ratio (expressed as a percentage) that the total number of minor children— “(i) who have been born out of wedlock, and “(ii) the paternity of whom has been established or acknowledged during the fiscal year, bears to the total number of children born out of wedlock during the preceding fiscal year; and”. (4) Section 452(g)(3) (42 U.S.C. 652(g)(3)) is amended— (A) by striking subparagraph (A) and redesignating subparagraphs (B) and (C) as subparagraphs (A) and (B), respectively; and (B) in subparagraph (A) (as so redesignated), by striking “the percentage of children born out-of-wedlock in a State” and inserting “the percentage of children in a State who are born out of wedlock or for whom support has not been established”. 110 STAT. 2233 (d) Effective Dates.— (1) Incentive adjustments.— (A) In general.— The system developed under subsection (a) and the amendments made by subsection (b) shall become effective on October 1, 1999, except to the extent provided in subparagraph (B). (B) Application of section 458.— Section 458 of the Social Security Act, as in effect on the day before the date of the enactment of this section, shall be effective for purposes of incentive payments to States for fiscal years before fiscal year 2000. (2) Penalty reductions.— The amendments made by subsection (c) shall become effective with respect to calendar quarters beginning on or after the date of the enactment of this Act.