; and (II) shall include any information withheld under subclause (I) in the earliest subsequent report submitted under clause (i) after the investigation has been closed. (B) Penalty (i) In general (I) First fiscal year (aa) States (AA) Failure to comply by State For the first fiscal year that follows a fiscal year in which a State failed to comply with subparagraph (A) with respect to a State law enforcement agency, the State shall be subject to a 20-percent reduction of the funds that would otherwise be allocated for retention by the State under section 505(c) for that fiscal year. (BB) Failure to comply by local government For the first fiscal year that follows a fiscal year in which a unit of local government within a State failed to comply with subparagraph (A), the State shall be subject to a reduction of the funds that would otherwise be allocated for retention by the State under section 505(c) for that fiscal year by a percentage that is equal to the percentage of the population of the State that lives in the unit of local government, which may not exceed 20 percent. (bb) Units of local government For the first fiscal year that follows a fiscal year in which a unit of local government failed to comply with subparagraph (A), the unit of local government shall be subject to a 20-percent reduction of the funds that would otherwise be allocated to the unit of local government under this subpart for that fiscal year. (II) Subsequent fiscal years (aa) States Beginning in the first fiscal year beginning after the first fiscal year described in subclause (I)(aa)(AA) in which a State fails to comply with subparagraph (A) with respect to a State law enforcement agency, the percentage by which the funds described in subclause (I)(aa)(AA) are reduced shall be increased by 5 percent each fiscal year the State fails to comply with subparagraph (A) with respect to a State law enforcement agency, except that such reduction shall not exceed 25 percent in any fiscal year. (bb) Local governments Beginning in the first