SENATE BILL NO. 44 "An Act making appropriations for year 2000 assessment, compliance, and remediation projects; making appropriations under art. IX, sec. 17c, Constitution of the State of Alaska; and providing for an effective date." ROBERT POE Commissioner, Department of Administration (newly appointed) He explained how Y2K is related to the way dates are used in the computer. The state was taking a three-fold approach 1) take care of ourselves (govt.) 2) reach out to businesses 3) reach out to small and medium sized businesses, who are most vulnerable to Y2K problems because of their inability to prepare for major losses. We identified 200 functions the State of Alaska provides. (He listed some examples.) Of those we identified 89 that are mission critical CO-CHAIR JOHN TORGERSON Why did you identify economic well being at the same level as life emergencies? COMMISSIONER POE Because the harm it could have on the economy could be detrimental. CO-CHAIR SEAN PARNELL Related keeping prisoners in cells to paying small business vendors on time. Realize importance of economic wellbeing to small business, but think all would agree that keeping prisoners in cells is more important. COMMISSIONER POE Understand. We plan to take care of 89 mission critical items first then eventually address all 200 areas. Refer to agency report. This was first created internally, the evaluated with a final external report released. There will be an update produced each month and you will be provided with a copy. They will also be available on website which has had already had many hits to site. It takes money to fix systems. In coming up with the list in SB44 we applied a process, which you will also probably follow. We put together a committee of 3 people including myself, someone from Office of Management and Budget and someone from the Department of Education. Our Original request was $27.9 million. Of that we were able to reduce the figure to about $17. Million, including University of Alaska. However, we had bad news from contractor and will have to raise the figure. The average state expenditure for Y2K is $74.1 million. CO-CHAIR SEAN PARNELL Believe that to be unrealistic. Refer to corporate figures. COMMISSIONER POE Number is accurate if you look at the entire picture. CO-CHAIR SEAN PARNELL If I looked at total to fix every aspect including upgrades, AK's figure would be much higher. COMMISSIONER POE Other states are not grouping other upgrades into this figure, just Y2K fixes. Only 300+ days left to get done. Things will go wrong. One of the best defenses against Y2K litigation will be preventive steps taken beforehand. We've been using money from the state's risk mgmt fund to address so far. CO-CHAIR SEAN PARNELL Is this out of the Department of Administration FY99 budget? COMMISSIONER POE Yes. CO-CHAIR SEAN PARNELL Are the funds used for Department of Administration Y2K fixes alone? COMMISSIONER POE No that's for all the departments. CO-CHAIR SEAN PARNELL Your handout says that to date $791,000 has been spent so far. Request a list showing a breakdown by departments listed in handout. Doesn't this figure ignore other efforts made by dept.s so far? This figure doesn't reflect total state costs to date? COMMISSIONER POE Correct. The reason we didn't layout all those numbers is because it's hard to differentiate Y2K expenditures from regular upgrades. CO-CHAIR SEAN PARNELL Further discussion. So we have more expenditures in all departments than shown here. COMMISSIONER POE We've had departments stop other upgrade work and only focus on Y2K. Every department is following the same five- step process beginning with an inventory and continuing on to test, replace equipment as needed and lay out a contingency plan for unexpected failures. Part of the bill is a request to repay the risk mgmt fund, which protects the state against litigation. Could walk through key aspects of the bill if committee would like. CO-CHAIR SEAN PARNELL Note people linked to meeting via teleconference from the University of Alaska that can address the committee later in the meeting. SENATOR AL ADAMS Are we using existing programs or new funds for these fixes? POE Both probably more existing programs than new. SENATOR AL ADAMS (Request breakdown.) POE Often takes both to solve Y2K. CO-CHAIR SEAN PARNELL But we don't have that information to make our judgements. POE Yes we'll get that for you. SENATOR AL ADAMS What new people have been added to work on project? POE Me, plus four others from different agencies. Quite a lot of work associated with the project. CO-CHAIR SEAN PARNELL So five positions are filled and funded? POE All are funded. One position is currently vacant. SENATOR JOHN TORGERSON What are you funding from the risk mgmt fund? POE We are asking for reimbursement to the fund. Other projects are being delayed to route funds here. (Listed dollar amounts of monies routed from other projects to Y2K.) We have made attempts to survey public utilities throughout the state, many of which haven't responded. We have to spend more money to do another survey to try to find out the status of their compatibility. (Give an example of Village Safe Water projects and the need to make sure there are no imbedded chips in these systems.) SENATOR JOHN TORGERSON So this money is already spent and the projects are completed? POE Most of the projects are completed. The money has already been spent. SENATOR JOHN TORGERSON How much? POE Don't have exact figures. $2.1 million has either been spent or committed. SENATOR JOHN TORGERSON You feel the risk management fund needs to be reimbursed? POE Yes to insure the state. POE That's why the matter of self insurance is so critical. SENATOR RANDY PHILLIPS Your listing quotes 60 % of utilites. Is that all utilities or just electric power plants? POE All utilities. CO-CHAIR SEAN PARNELL You indicated that $2.1 million has been committed. How long has this Administration been working on this program? POE Since the beginning of this Administration some of the depts. have been working on the problem (Refer to state payroll system upgrades made early in the Administration that incorporated Y2K compliant systems.) CO-CHAIR SEAN PARNELL Have you done any accounting of time and effort spent on this? I want a figure showing the human resources time spent on this since the beginning. POE Don't have figures, its too difficult to break out efforts spent on Y2K and time spent on regular upgrades. CO-CHAIR SEAN PARNELL The reason I bring this is up is that it looks like a tremendous amount of work has been done already with lots of work left to be done. I want some idea of what's been invested. Also I don't want funds spent on other upgrades that are not important to Y2K. Want assurance of what steps you have taken to make sure departments aren't taking advantage of the Y2K funding to purchase nonessential upgrades. POE We share that cynical view. (Explain process to ensure requests were required for mission critical Y2K fixes.) About $10 million of the original request we sent back as not fitting the criteria. CO-CHAIR SEAN PARNELL So if we have additional information of some falling through cracks you'd want to know about? POE Yes. SENATOR JOHN TORGERSON (Refer to the public utilities surveys and steps taken to assist them in becoming capatible.) POE We want to know what areas have problems. Need to know what communities are venerable to public utilities. Realize some of the communities are not techniology advances and don't even have the information to determine their capabilities. SENATOR JOHN TORGERSON Does that mean we should not expect to see anything in this year's capital budget for Y2K items? POE I believe so; I didn't do the capital budget. SENATOR JOHN TORGERSON (Note some federal match finding and inquired what those funds were intended to address.) POE Some are for the Medicaid system, some are for Department of Transportation and Public Utilities for a Marine Hwy project. SENATOR JOHN TORGERSON I find it surprising that the Kennicott needs assessment. Isn't that new vessel? POE When the contract was made, Y2K wasn't included as part of the contract. There is now some discrepency about who is responsible, the state or the builder. That is a common problem in many communities. Our contracts today require Y2K compatibility. SENATOR JOHN TORGERSON I don't find it laughable, somebody in Department of Transportation and Public Utilities wasn't paying attention when they drew up the contract. SENATOR RANDY PHILLIPS Is the Department of Corrections here to address their request? POE Not here. SENATOR RANDY PHILLIPS Regarding small public utilities. What percentage of the population is compliant? If no electricity going into computers then it doesn't matter if that computer is compliant. POE Agree. We've committed risk mgmt funds to look at that issue. SENATOR AL ADAMS (Refer to the opening statement comments that Y2K problems are date related.) Seems like we'd find someone to write software to figure this out? POE Many have asked that same question before you. There is no silver bullet. Depending on the technology, different fixes are needed. Some systems have imbedded chips. There are several products. One has been written for Cobalt. It depends on the particular program. That's why it's such a difficult problem. SENATOR GARY WILKEN (Refer to Pg1 line 11-13 of the bill stating Y2K problems have already been sufferred.) POE In the state we've found actuarial systems. Example, one agency bought lots of rubber stamps saying that they were Y2K compatible, but they didn't have year 1999. (Also refer to Fairbanks' new 911 system that is not Y2K compliant.) SENATOR RANDY PHILLIPS Have you looked at other jurisdictions and how they are solving problems? POE Looked at all 50 states plus Canada. I'm not worried about Canada. SENATOR JOHN TORGERSON Regarding the risk mgmt account. Is that your target to leave $5 million in the acct? What has the low balance been over last 5 years? POE We would like a balance of $5 million. Can get figure of the lowest account balance for you. SENATOR JOHN TORGERSON (Refer to a potential of less exposure and suggested the need for a $5 million balance might be overestimated. Refer to billing of agencies.) POE Department of Administration bills agencies based on the number of employees in their department for their contribution to the fund. CO-CHAIR SEAN PARNELL Have you ascertained different problems such as June 30th? POE We will have problems on June 30. We've identified on the inventory list what the failure dates will be. CO-CHAIR SEAN PARNELL Have all the systems you identified been taken care of? POE Some are still having problems. CO-CHAIR SEAN PARNELL What I'd like to see is a spreadsheet in the bill listing all of the projects. POE Will get for you. CO-CHAIR SEAN PARNELL Also want you to identify funds to be used. SENATOR JOHN TORGERSON AK Railroad is known for making money and not having to rely on the state for any supplemental. Therefore, why are their programs included here? POE The proposed money will be spent from the railroad funds for their systems. SENATOR JOHN TORGERSON They've already spent this money? POE Expenditures were made in FY99 out of the railroad fund. SENATOR JOHN TORGERSON Will you make sure the proposed new locomotives are Y2K compatible? POE Yes. CO-CHAIR SEAN PARNELL (Noted listing of federal receipts of $2.4 million.) Are these funds allocated just for Y2K projects? JANET CLARKE Department of Health and Social Services (Addressed federal funds allocated to her department. She explained the federal match for Medicaid.) The funds are relative to our Medicaid expenditures. CO-CHAIR SEAN PARNELL (Ask for further explanation.) So we've spent this much money before for other Medicaid program expenditures? CLARKE Should be a little higher. SENATOR AL ADAMS Is there a restriction on how the funds can be spent? CLARKE They can only be spent on Medicaid programs. CO-CHAIR SEAN PARNELL What is the maximum amount of federal funds we can get in 1999 to address Y2K Medicaid problems? CLARKE If we needed to spend more, we would get a higher match. It is not a cash dollar amount. SENATOR RANDY PHILLIPS Have you looked at other businesses in AK and how they are solving problems? (Refer to a credit union that claims to be Y2K compatible.) POE The credit union was pressured by their regulators early on so they have made the necesarry upgrades. Tape: SFC - 99 #15, Side B 2:15 PM We have also Looked at hospitals and their efforts. (Refer to the outreach stage of the department's three-phase approach.) We are talking with chambers of commerce about this issue. Some are really taking the matter seriously others aren't. National Bank of Alaska is offering some help to its small business customers. Plus we are doing outreach and have info on the web. We are putting out a list of AK contractors who are available to address issues. SENATOR LYDA GREEN (Ask explanation of risk management.) POE There are a number of areas were we cover our own liability such as airports, marine facilities. Other than that we have insurance policies with huge deductibles. We use those funds to settle large claims against the state. My understanding is that fund is billed to departments based on number of employees working in a particular department. SENATOR LYDA GREEN Is there any limit on what that fund can be used for? POE There is, If you're asking how fund could be used for Y2K. I can answer. There have been studies showing a potential for large lawsuits regarding Y2K problems. If efforts are made in advance to avoid some of the problems we felt that would reduce lawsuits to the state. Therefore, we can justify using this fund.. SENATOR GARY WILKEN Are we going to hear from University of Alaska this morning? CO-CHAIR SEAN PARNELL (Speak to Steve Smith via teleconference.) Did you want to only answer questions or also give a presentation? STEVE SMITH I can give a short presentation. CO-CHAIR SEAN PARNELL We will wrap up Department of Administration first. Regarding the Department of Corrections request. There is some question if this is just an upgrade from 386's to Pentium processors, or is it to meet Y2K compatibility requiremtns? POE I understand your concern. But the old 386 computers are not Y2K compatible. CO-CHAIR SEAN PARNELL Are they used just for word-processing? POE We need to look at each one. If a computer is used only for word processing and isn't hooked up to a network, then we won't need to replace it. But if it is hooked up to a LAN then it needs to be compatible. We have to ask what that computer is doing. CO-CHAIR SEAN PARNELL Alaska Court System CHRIS CHRISTENSEN Staff Council, Alaska Court System We were the last branch to computerize and this has worked to help us with Y2K problems. Since our systems are new, we have installed compliant systems as we went along. Most everything is compliant. What we do need is upgrade to the telephone systems. (Refer to importance of court proceedings taking place via teleconference. Note many proceedings are handled long- distance to save on travel expenses.) Also have a security systems in 5 buildings which will stop working in 2000. Jail cells in court buildings currently run on non-Y2K compliant equipment and need to be made secure. SENATOR JOHN TORGERSON Are we expecting Y2K expenditure requests for the court system in the capital budget? CHRIS CHRISTENSEN No, our facilities are under the care of Department of Transportation and Public Utilities, which will ask for funds to cover expenses for systems like the elevators. POE These Department of Transportation and Public Utilities requests won't be in addition to the $1.9 million requested in this bill. CHRIS CHRISTENSEN We have 59 facilities, but they are leasehold and the landlord will take care of making them compliant. SENATOR RANDY PHILLIPS Department of Public Safety - what about their requests? POE (Refer to only one item.) Other than that they don't have further requests. Part of their maintenance efforts has allowed them to take care of making their systems compliant. CO-CHAIR SEAN PARNELL Teleconference - hear from University of Alaska on their $5million request. STEVE SMITH Interim Chief Information Officer heading up Y2K MaryLou Burton is handling internal systems. Our request has included all three major campuses, Anchorage, Fairbanks and Juneau, and their outlying facilities. The University of Alaska is doing much to address the issue. Original estimate that was $7.9 million would be needed. As we reassessed the figure has gone down. The amount would have been much higher if we hadn't started years ago to address fiscal systems and student information systems. We have been in the process of upgrading our library systems. Even when vendor says a system its Y2K compliant, we have ran tests to make sure. We have put together a plan for an event of failure. Our first priority is life- threatening issues. Students living in on- campus housing. The next priority is with student finances. We have some challenges with our facilities being so spread out across the state. We have concerns with the potential loss of some research data. We have strict criteria to estimate what upgrades meet the criteria for essential Y2K problems. We want to make sure people are not replacing desktops just to upgrade them. Also we have some federal requirements setting deadlines for us to make sure we are compliant. Such as NOAA, NASA, National Science Foundation... We are looking at secondary suppliers making sure they can deliver things such as food. We're spending lots of time on contingency planning. Were planning to have staff on board and on call as we switch over to January 1, 2000. A few weeks ago we did a test of the Fairbanks campus' power plant that blew up the system and shut down power. CO-CHAIR SEAN PARNELL SENATOR LYDA GREEN Please explain the phrase, "loss of research data." STEVE SMITH (Speak to the research efforts and explain that many research projects are done as contract studies.) We expect some loss of data. We have some tools to address the potential. We can't prevent it all in advance, but planning to address critical areas if they crash. SENATOR LYDA GREEN Are you talking about data already collected not future data? STEVE SMITH Yes. Much of this information was gathered using older machines. It would affect future data where we have devises in the field such as volcano reading equipment. SENATOR LYDA GREEN Did any of the federal agencies that imposed requirements programs give money towards the project? NASA, NOAA, NSF, etc.? SMITH No, with two exceptions. (Explain.) SENATOR LYDA GREEN Do you have a dollar figure on that to show the amount contributed? SMITH No but will get it for you? SENATOR JOHN TORGERSON Are you expecting any reimbursement for the federally required upgrades to apply toward the $5 million request? SMITH We are not expecting reimbursement except the 2 exceptions already allocated. SENATOR JOHN TORGERSON How much money is in the university's risk management pool? SMITH We did take money from that pool and we'll send detailed information to you. TORGERSON (Request high and low account balances over the last five years.) SENATOR RANDY PHILLIPS (Refer to the last page of the handout.) SMITH Repeat listing of mission critical items. SENATOR RANDY PHILLIPS (Request the university send a priority list to the committee.) SMITH We will do that. SENATOR RANDY PHILLIPS I disagree with the list as its written. I would like to have a list detailing number one priority, number two...) SMITH Will provide. SENATOR RANDY PHILLIPS If there is no electricity, you can't pay people regardless if your payroll system is compatible. SENATOR GARY WILKEN (Refer to handout page 6.) I see 20-25 life threatening matters, including TV and radio. I would like this list reprioritized. Some things may be an inconvenience, but I don't think they could be considered life threatening. STEVE SMITH We will go through and reprioritize items and give more detail on others. For example, the TV and radio system is part of the emergency broadcast system and must be made compatible. SENATOR GARY WILKEN Banner system. SMITH Working on banner system with the intention of making it Y2K compliant. When we began, some hardware was not available as Y2K compliant and we are getting those now as they do become available. SENATOR JOHN TORGERSON Section 4 shows a lapse date of June 30, 1999? POE We want to lapse at the next fiscal year so we can get through this year. SENATOR JOHN TORGERSON Is that was the section says? POE It says these are capital projects and would fall under the five-year lapse rule. SENATOR JOHN TORGERSON Would you mind if we gave a lapse date of Dec 30, 1999? POE We request a little after that to cover unanticipated problems that will probably arise for next 3-4 months. SENATOR JOHN TORGERSON Then why is this request so important now? POE Some problems will still occur, but we need to prevent as many as possible. SENATOR JOHN TORGERSON Are the funds subject to reappropriation if not spent here? POE We are asking you to appropriate the funds to the Y2K office. Funds that are not needed for one Y2K problem then can be diverted to another Y2K problems if necessary. We would be made accountable for all expenditures and would report back to you next year. SENATOR AL ADAMS Clarification question. You have requested $ 5 million of which you have borrowed $2 million from the risk mgmt fund. Do you plan to replenish that fund? SMITH Yes. Explain. CO-CHAIR SEAN PARNELL I will appoint a subcommittee to address t his issue in more detail. Senator Gary Wilken chair, Senator Randy Phillips, Senator Lyda Green, Senator Al Adams. Ask them to investigate more thoroughly and obtain as much information as possible. Instead of giving a formal presentation to the committee, ask to report to co-chair offices with information by next Fri. SENATOR LOREN LEMAN Don't have back up in my file and would like to see what is entailed. CO-CHAIR SEAN PARNELL Every office received a material packet. I realize we need much more info. SENATOR GARY WILKEN Want subcommittee to meet right away. My intention is to go through the departments and ask for backup. The more detail the better. I like the court system's format and request other agencies follow that format. CO-CHAIR SEAN PARNELL How much has the University of Alaska spent to date on the Y2K issue? SMITH Will have to research exact figure. Estimate about $2 million. I will be in Juneau Wednesday through Friday and will be happy to meet with interested parties and bring backup. SENATOR DAVE DONLEY Did anyone bring up the aspect of liability of the vendors that sold us equipment and software? Equipment that is 5-6 years old should have been made compatible. This is a matter of product liability and basic warranty. POE I've monitored some lawsuits. At issue is how long companies should have been making systems compatible. One case was thrown out of court with the opinion that you can't sue for things that have not happened yet. A second time, the same case was thrown out because the vendor made upgrades available free or at a low cost. There are also problems with manufactures that subcontracted items, integrated them into their systems and are unaware of Y2K difficulties. SENATOR DAVE DONLEY Have you discussed this matter with the attorney general? I think we should sue. With regard to the argument that you can't sue for damages not yet incurred, we have already incurred immediate damages in the cost of upgrades we need to make in anticipation. POE Our focus has been to avoid our own potential damages for things we havn't upgraded. CO-CHAIR SEAN PARNELL Where does the buck stop? Are there certifications for measures already taken to verify that they are compliant? POE Contractors are reluctant to certify that a system is in compliance. They are worried about their own liability. Tape: SFC - 99 #16, Side A 2:15 PM POE There are still issues of interconnections with other systems that may cause other problems. Importance of contingency plans. CO-CHAIR SEAN PARNELL I'm reluctant to spend the money without guaranteed results. I want the subcommittee to look at further. POE CO-CHAIR SEAN PARNELL The problem is not just with vendors not issuing a certification, some internal sources are also refusing. POE The things we are fixing we will say are compliant. However, something along the way could still cause problems. CO-CHAIR SEAN PARNELL Understand, but we need some kind of certification. SENATOR DAVE DONLEY I will be asking again at every meeting if you talked to attorney general about litigating vendors for their part in this. Vendors made lots of money off of state and businesses. POE Others support a bill to remove them from any liability. SENATOR DAVE DONLEY Won't support. Some made lots of money POE CO-CHAIR SEAN PARNELL Think that the people looking for immunity at this point are not those who sold but those who bought. SENATE FINANCE COMMITTEE LOG NOTES 02/01/99 Page 7