The error rate used is the one from three years back
What the document says“For fiscal year 2029 and each fiscal year thereafter, to calculate the applicable State share under clause (i), the Secretary shall use the payment error rate of the State for the third fiscal year preceding the fiscal year for which the State share is being calculated.”
The section provides that for fiscal year 2028 a State may elect to use its payment error rate from fiscal year 2025 or 2026, and that from fiscal year 2029 on the Secretary uses the State's payment error rate for the third fiscal year before the year being calculated.
What the document actually says“For fiscal year 2029 and each fiscal year thereafter, to calculate the applicable State share under clause (i), the Secretary shall use the payment error rate of the State for the third fiscal year preceding the fiscal year for which the State share is being calculated.”
From fiscal year 2029 on, the rate used is an older one. It is the rate from three years back.
For the first year, 2028, a state gets a choice. It may use its 2025 rate or its 2026 rate. It picks the one it wants.
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