system in administering program A State to which a grant is made under section 403 shall establish and maintain personnel standards through a merit-based system, in administering the State program funded under this part and any other State program funded by qualified State expenditures (as defined in section 409(a)(7)(B)(i)). . (b) Penalty Section 409(a) ( 42 U.S.C. 609 ), as amended by sections 5(c)(2)(A), 7(d)(1), 8(b)(2), and 9(b)(2) of this Act, is amended by adding at the end the following: (21) Penalty for failure to use merit-based system in administering program If the Secretary determines that a State to which a grant is made under section 403 in a fiscal year has violated section 408(a)(17) during 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 5 percent of the State family assistance grant. . 11. Ban on using Federal TANF funds to replace State and local spending that does not meet the definition of qualified State expenditures (a) Prohibition Section 408(a) ( 42 U.S.C. 608(a) ), as amended by sections 7(d)(1), 8(b)(1), 9(b)(1), and 10(a) of this Act, is amended by adding at the end the following: (18) Ban on using Federal TANF funds to replace state or local spending that is not a qualified state expenditure A State to which a grant is made under section 403, and a sub-State entity that receives funds from such a grant, shall not expend any part of the grant funds to supplant State or local spending for benefits or services which are not qualified State expenditures (within the meaning of section 409(a)(7)(B)(i)). . (b) Penalty Section 409(a) ( 42 U.S.C. 609 ), as amended by sections 5(c)(2)(A), 7(d)(1), 8(b)(2), 9(b)(2), and 10(b) of this Act, is amended by adding at the end the following: (22) Use of federal TANF funds to replace state or local spending that is not a qualified state expenditure If the Secretary determines that a State to which a grant is made under section 403 in a