HOUSE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE February 4, 1999 8:05 a.m. MEMBERS PRESENT Representative Andrew Halcro, Co-Chairman Representative John Harris, Co-Chairman Representative Carl Morgan Representative Lisa Murkowski Representative Fred Dyson Representative Albert Kookesh MEMBERS ABSENT Representative Reggie Joule COMMITTEE CALENDAR *HOUSE BILL NO. 57 "An Act relating to immunity for certain claims against the state, a municipality, or agents, officers, or employees of either, arising out of or in connection with the year 2000 date change; and providing for an effective date." - MOVED HB 57 OUT OF COMMITTEE HOUSE BILL NO. 22 "An Act relating to investigations of property by a municipal assessor or the assessor's agent; and providing for an effective date." - MOVED CSHB 22(CRA) OUT OF COMMITTEE (* First public hearing) PREVIOUS ACTION BILL: HB 57 SHORT TITLE: STATE & MUNI IMMUNITY FOR Y2K SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR Jrn-Date Jrn-Page Action 1/22/99 64 (H) READ THE FIRST TIME - REFERRAL(S) 1/22/99 64 (H) CRA, JUDICIARY 1/22/99 64 (H) ZERO FISCAL NOTE (ADM) 1/22/99 64 (H) GOVERNOR'S TRANSMITTAL LETTER 2/04/99 (H) CRA AT 8:00 AM CAPITOL 124 BILL: HB 22 SHORT TITLE: INVESTIGATIONS BY MUNICIPAL ASSESSOR SPONSOR(S): REPRESENTATIVES(S) OGAN Jrn-Date Jrn-Page Action 1/19/99 23 (H) PREFILE RELEASED 1/8/99 1/19/99 23 (H) READ THE FIRST TIME - REFERRAL(S) 1/19/99 23 (H) CRA 2/02/99 (H) CRA AT 8:00 AM CAPITOL 124 2/02/99 (H) HEARD AND HELD 2/04/99 (H) CRA AT 8:00 AM CAPITOL 124 WITNESS REGISTER ROBERT POE, Commissioner Department of Administration PO Box 110200 Juneau, Alaska 99811-0200 Telephone: (907) 465-5670 POSITION STATEMENT: Discussed Y2K issue and HB 57. BRAD THOMPSON, Director Division of Risk Management Department of Administration PO Box 110218 Juneau, Alaska 99811-0218 Telephone: (907) 465-5723 POSITION STATEMENT: Discussed Y2K issue and HB 57. GAIL VOIGTLANDER, Assistant Attorney General Special Litigation Section Department of Law 1031 West 4th, Suite 200 Anchorage, Alaska 99501 POSITION STATEMENT: Answered questions regarding HB 57. REPRESENTATIVE OGAN Alaska State Legislature Capitol Building, Room 128 Juneau, Alaska 99801 Telephone: (907) 465-3878 POSITION STATEMENT: Discussed proposed CSHB 22. STEVE VAN SANT, State Assessor Department of Community & Regional Affairs 333 West 4th, Suite 200 Anchorage, Alaska 99501 POSITION STATEMENT: Discussed "actual possession" language. ACTION NARRATIVE TAPE 99-4, SIDE A Number 001 CO-CHAIRMAN HALCRO called the House Community and Regional Affairs Standing Committee meeting to order at 8:05 a.m. Members present at the call to order were Representatives Halcro, Harris, Morgan, and Dyson. Representatives Murkowski and Kookesh arrived at 8:08 a.m. and 8:07 a.m. respectively. HB 57 - STATE & MUNI IMMUNITY FOR Y2K Number 024 CO-CHAIRMAN HALCRO announced the first order of business as, HOUSE BILL NO. 57 "An Act relating to immunity for certain claims against the state, a municipality, or agents, officers, or employees of either, arising out of or in connection with the year 2000 date change; and providing for an effective date." ROBERT POE, COMMISSIONER, Department of Administration, explained that the year 2000 (Y2K) problem is related how computers read dates. Most computer programs were written to handle a two digit date as on a checkbook where "19" is already present. Placing "20" in front of the two digits creates some real challenges. The Gartner Research Group, a national think tank, estimates the cleanup costs for Y2K problems to be between $300-$400 billion in the United States. The Gardner Group further estimates the cost of litigation to be $1 trillion. Commissioner Poe used the Northstar Borough's 911 system, which is a little over a year old, as an example. The Northstar Borough 911 system will fail in significant ways because the system cannot handle the year 2000 date change; the date stamping specifying when a call came in will fail. "The Northstar Borough may have a beef with the contractor who sold them that system only a year-and-a-half before these date changes occurred." The state could become involved in much of the litigation related to Y2K failures. Number 109 In fixing the Y2K problem in Alaska, the state is only fixing 89 of the 200 major functions. Commissioner Poe said that the state has had to prioritize in terms of time and funding. A triage was applied regarding a system's impact on life, health, safety, or the economic well-being of Alaskans. If a system has significant impact in the aforementioned areas, attempts to fix that system would be made. Those systems that do not have a significant impact in those areas would be covered by a contingency plan which would provide an understanding of what to do during failure, but no funds would go to toward fixing that system. Commissioner Poe acknowledged that in the current fiscal climate, a $19 million request is not viewed lightly. However, a $19 million request for Y2K funding is relatively small. Number 130 Commissioner Poe expressed concern with the issue of risk management because the state is self-insured which could lead to exposure. One of the largest threats related to Y2K problems is litigation. The legal community generally agrees that the best defense is to take a due diligence approach to solving the problem which has been the approach thus far. With the due diligence approach, the five-step process that is utilized nationwide is documented. Currently, risk management funds are being used to move the project forward as funding for specific Y2K projects is discussed. Even under the due diligence approach, there is no real protection against litigation. For example, the company Intuit which produces Quick Books placed information on the Internet specifying which systems were Y2K compliant and those which were not. An attorney saw that as an opportunity for a class action suit. This class action suit claims that folks should be awarded damages based on the fact that Quick Books would fail which could impact the persons financial management. The courts have ruled that one cannot sue for something that has not yet happened not to mention that the company has offered to fix the system or provide an upgrade. Commissioner Poe said that there are hundreds of such suits. He pointed out that the committee packet should contain information regarding the various laws as well as laws under consideration at the federal and state level. Number 193 One of the most important laws at the federal level is the Good Samaritan Bill. Commissioner Poe emphasized that one of the most important pieces in fixing the Y2K problem is the sharing of information. The Good Samaritan Bill makes the good faith sharing of Y2K information not a basis for litigation. This federal bill has helped in the sharing of information which reduces the cost of dealing with the Y2K problem. Commissioner Poe said, "The more you look at it, frequently the less problems you find out that you have." For example, in the 300 or so rural airports in Alaska only one had a problem which has been fixed. The Anchorage Airport has minimal problems. Number 248 Commissioner Poe informed the committee that there has been review of state facilities regarding heating, ventilation and control systems. Heating, ventilation and control systems are linked to the calendar; for example, determining when there is a holiday in which the lights should not come on. He noted that all the state systems are being reviewed to determine the problems and the associated cost to fix the problem. When possible the problem is fixed as it is identified. The first estimate of cost to fix these systems was $6.5 million, but has dropped to $4.5 million which includes auditing. Commissioner Poe said, "That number continues to go down as we get smarter." Number 280 BRAD THOMPSON, Director, Division of Risk Management, Department of Administration, informed the committee that the Division of Risk Management operates the self-insured property and casualty program for the state, the state's operations and employees. He echoed Commissioner Poe's comment regarding the anticipated failures and expectation of significant litigation. Mr. Thompson noted that five other states have enacted bills to protect their respective state and local municipalities; that information is included in the committee packet. The committee packet also contains information regarding how accurate and current other states are in considering and introducing legislation similar to HB 57. Mr. Thompson explained that Alaska does not have a limitation of liability, as do 32 states, and HB 57 is not seeking such. The expected litigation will be technical in nature which could create the need for expert witness that are expensive. Even if the state were to prevail, much cost would be incurred that may not be recovered. Number 325 REPRESENTATIVE MURKOWSKI asked if by enacting HB 57, would the pressure for Y2K compliance by state agencies be relaxed. COMMISSIONER POE did not believe so. The people of Alaska should not be harmed by these systems which has led to the work thus far as well as the decision to use funding from the Division of Risk Management in order to move forward with the Y2K project. Using the funding from that division is a risk because there is no specific appropriation allowing that. Commissioner Poe expressed the need to move the process forward, prevent harm, and fix the systems without the fear of litigation which could debilitate the good-faith sharing of information. The Y2K problem does pose a large financial burden on the state. Commissioner Poe believed that by freeing people from the issue of liability, the process can move forward. Number 362 REPRESENTATIVE MURKOWSKI asked if the state has a plan with date specific benchmarks for the Y2K plan; if there are such benchmarks, is the state on target? COMMISSIONER POE explained that the state has taken a three-front approach with the Y2K problem. First, the state deals with its own systems and the other two elements are to work with local governments and small/medium size businesses. Commissioner Poe further informed the committee that there is a five-step process that everyone follows. Firstly, inventory the systems with potential Y2K problems. Secondly, assess the system and determine if the system has a Y2K problem. Thirdly, determine what is required to fix the problem and fix the problem. Fourthly, test the corrected system in order to determine that the Y2K problem is fixed and no other problems were created. Fifthly, implement the system. Commissioner Poe informed the committee that Y2K problems are manifested in software, hardware, and connectivity of systems. Commissioner Poe reiterated that 200 major functions of the state have been identified. The triage approach prioritizes 89 systems that are scheduled to be fixed and the remaining are covered by a contingency plan. Number 406 Commissioner Poe explained that each agency has mission critical systems and the progress of those systems is reported to the department monthly. Every agency has contingency plans which continue to be fine-tuned. He pointed out that under the mission critical systems, the failure date is also being monitored for each agency. Commissioner Poe informed the committee that the following failure dates must be considered: June 30, 1999 which is the change in the state fiscal year; September 9, 1999 (9999) is a programming trick; September 30, 1999 is the federal fiscal year; and December 31, 1999. All of those dates can create problems and some systems have already experienced problems. Commissioner Poe explained that the failure date determines where the agency should be in the five-step process. Commissioner Poe explained the color code system being used to indicate the progress of the agencies. Yellow indicates that an agency will complete system corrections before the failure date. Critical to the agency's progress is the funding. He noted that several agencies did not request any money because those agencies are shifting resources to work on Y2K compliance. Currently, every agency falls under the yellow code. A few greens, such as the rural airports and the Village Safewater Systems, should emerge after the next report. Commissioner Poe emphasized that a number of things could inhibit the expected progress, the main inhibitor being funding. Number 445 CO-CHAIRMAN HARRIS noted that HB 57 has a sunset provision of January 1, 2006. Co-Chairman Harris asked if the $19 million request would be a one-time expenditure or would there be more requests in the next year or so. COMMISSIONER POE pointed out that there will be ongoing computer updates that must continue. Some of the Y2K problems were dealt with during previous computer updates. Commissioner Poe said, "I don't think you'll see specific Y2K requests going out in out years. I guess I have to leave open the possibility that there may be some dramatic failure that we didn't expect that would cause some request in the immediately following year, but I don't see anything beyond that would be a Y2K related event." CO-CHAIRMAN HARRIS inquired as to the anticipated exposure to the state and municipalities. COMMISSIONER POE reiterated the department's three-front approach. Reaching out to local governments was done because many Alaskans receive services at that level. Commissioner Poe noted that small and medium-sized business were contacted due to the economic diversification they bring. Commissioner Poe informed the committee that after the World Trade Center bombing, the building was closed for about four months which resulted in 49 percent of the businesses going out of business. This break in business would be similar to the exposure resulting from Y2K problems. Number 500 Commissioner Poe identified supply lines as the first Y2K exposure that Alaska would experience. To America, Anchorage is the end of the road while to many in Alaska it is the distribution center. In the U.S. there have already been dramatic supply line problems such as the failure of the train tracking system in Chicago which left many train cars sitting and delay in shipments. Supply line interruptions could occur outside of Alaska and still have a huge impact on Alaska. Commissioner Poe compared the possible supply line interruptions to when the milk barge does not arrive. Telecommunications is another area to which Alaska will be exposed. The average long-distance call has about nine switch moments all of which can have a Y2K problem that could prevent communication. Commissioner Poe identified electric power as one of Alaska's bright spots regarding Y2K. Most communities can meet their load demands. Alaska is not as tied into the type of grid system that is utilized down South. Commissioner Poe highlighted the area of medicinal supplies such as insulin as a concern related to possible supply line problems. Commissioner Poe stated that emergency management response is of much concern. Alaska may experience Y2K problems over time such as not having an inventory replenished. He noted that although the Bush areas usually stock up on the basics, in recent years the Bush has moved away from traditional food gathering and storage. The Bush may not experience supply line problems for a month or so. There may be simultaneous failures across the state and the emergency management response must be prepared. At the end of February, there will be table-top exercises in order to review how well the response will be and who can be relied upon. For example, in Juneau the marine VHF radios operated by the Coast Guard utilize seven transmitters of which six go through telephone lines. Such issues need to be addressed. Commissioner Poe stated that the exposure the state expects also applies at the community level. Number 578 CO-CHAIRMAN HARRIS expressed concern that HB 57 only addresses Y2K immunity for governments; should there be concern and immunity for the private sector? MR. THOMPSON referred to the committee packet which includes information regarding the active consideration at the federal level for Y2K protection for everyone. The federal litigation is geared to protect general industry. Mr. Thompson indicated that the public entity may not be very protected by this federal legislation. HB 57 is specific to the state and it's public services. With regard to the previous comments regarding immunity creating the decline in attempts to remedy the Y2K issue, Mr. Thompson emphasized that there is the need to continue to provide public service which is an incentive that may not exist in the private sector. CO-CHAIRMAN HALCRO inquired as to why the department has waited so long to address the Y2K issue. COMMISSIONER POE pointed out that last year there was a Y2K funding request that did not receive funding. He informed the committee that he began work on the Y2K problem August 1, 1998, and Mr. Thompson recognized that the Y2K problem was a risk management issue. Mr. Thompson allowed risk management funds to be utilized to move forward with the Y2K plan. Alaska is not dissimilar to the position of many states. Commissioner Poe emphasized that state agencies resolved some of the Y2K issues during normal computer upgrades. Some of the agencies mainframe computers will be at the testing stage this week. Number 634 CO-CHAIRMAN HALCRO referred to a recently introduced bill in Connecticut which would require managed care organizations to provide a three month prescription for those classified as long-term chronic. Is Alaska taking any steps in that direction? COMMISSIONER POE said that issue is included in the contingency plans. He noted that he had met with various hospitals, oil companies, telecommunication companies, et cetera in order to share information. Hospitals are making steps. Commissioner Poe stated that the table-top work should include such thought. REPRESENTATIVE MURKOWSKI expressed the need to have a distinction between the awareness of the Y2K issue versus paranoia. Representative Murkowski mentioned that a bank in Alaska was prepared to hire additional security guards during the month of December. The bank was concerned that customers may withdraw large sums of money in December and would need help crossing the parking lot with the money. Representative Murkowski was interested in what the state was doing to ensure people that businesses will be open and systems will work. Number 673 COMMISSIONER POE agreed. The Y2K issue presents the need for a delicate balance between information and paranoia. Commissioner Poe believed having him speak around the state regarding the Y2K issue is an important investment because it allows more people, community groups, et cetera to come to terms with this issue as well as identify possible solutions. The best tactic is to form community groups to address the Y2K problem at the community level and come up with appropriate solutions for that community. Commissioner Poe noted that National Bank of Alaska has a speaking organization with the small business administration that travels around the state. The organization talks to small businesses regarding possible plans for Y2K protection. Commissioner Poe pointed out that national surveys predict that about 20 percent of the population believe the Y2K problem is critical which could create a major problem itself. TAPE 99-4, SIDE B Number 006 REPRESENTATIVE MORGAN pointed out that his district is huge. In his district, about all the supplies, from food to fuel, come from Anchorage. A supply line problem is felt quick, often sooner than two weeks, in such an area. COMMISSIONER POE informed the committee that the department has met with George Gover, Bureau of Indian Affairs, who is the head of the Y2K effort. Commissioner Poe emphasized the need to ensure that villages have the funds to buy all the fuel for the winter. The Village Safewater Projects are owned by each village, but the folks in that village are not trained to look in the black box for the microchip to determine what it will or will not do. Therefore, the department has checked to determine if the water system has problems. Those systems should be in the green zone. Number 085 Commissioner Poe reiterated that Alaska may be exposed to supply line problems that do not emanate from within Alaska. Diversification, having more than one supplier, is one of the best defenses against supply line problems that are not created in Alaska. REPRESENTATIVE DYSON commented that the Y2K issue is significant and will be dealt with in more than one venue. Representative Dyson encouraged the committee members not to let general interest deter addressing the specifics, limited liability. When the federal government began dealing with this a few years ago, the vendors were asked to guarantee no problems would result. No vendors would agree. Have we been smarter than the federal government? MR. THOMPSON explained, "We have addressed the Y2K within the conditions of performance. So that when we procure things, we're saying that we want to have certification that this is going to be, in fact, performing through the transition of the century change." Mr. Thompson noted that had been in the procurement language for a few years now. Number 142 REPRESENTATIVE DYSON restated his question. Contractors that have been hired for remedial software work; are those contractors required to guarantee that there will be no problems and assume responsibility for collateral damage. MR. THOMPSON commented that it is difficult to have someone commit to obligation for consequential or indirect damage arising from the failure of a system. That problem is relevant to any hardware and software outside of the Y2K problem. REPRESENTATIVE DYSON understood that the federal government could not find anyone to meet the requirements. Representative Dyson suggested that Alaska should not require contractors be held responsible for consequential damage. MR. THOMPSON explained that in the boilerplate contract conditions for software services the state does not attempt to recover the consequential remedies. The contractor is held accountable for the professional standard that is being performed. Number 180 GAIL VOIGTLANDER, Assistant Attorney General, Special Litigation Section, Department of Law, offered to answer any questions. REPRESENTATIVE DYSON felt Ms. Voigtlander would be a good person to direct Representative Murkowski's earlier question regarding whether the immunity offered in HB 57 would decline the motivation to work toward Y2K solutions and compliance. MS. VOIGTLANDER acknowledged that such an argument is utilized with immunity statutes. Ms. Voigtlander said, "This bill is to assist in the total Y2K remediation project. And, so, it is a compliment to that and it's not an escape from getting the mission critical systems up and running." The Department of Administration does have quite an extensive plan and is moving forward as funding has allowed. These systems must work in order for the state to work. Ms. Voigtlander felt that this argument is of lesser concern than in other venues. In response to Representative Murkowski, Ms. Voigtlander referred to page 3, under Section 09.50.255 (2) where the "physical apparatus that is not primarily used as a computer" is defined. Number 281 CO-CHAIRMAN HARRIS moved to report HB 57 out of committee with individual recommendations and the accompanying zero fiscal note. There being no objection, it was so ordered. HB 22 - INVESTIGATIONS BY MUNICIPAL ASSESSOR Number 292 CO-CHAIRMAN HALCRO announced the next order of business before the committee as HOUSE BILL NO. 22, "An Act relating to investigations of property by a municipal assessor or the assessor's agent; and providing for an effective date." Co-Chairman Halcro called a brief at-ease from 9:05 a.m. to 9:07 a.m. REPRESENTATIVE OGAN, sponsor of HB 22, informed the committee that the proposed committee substitute (CS) includes language addressing the concerns brought out at the previous hearing. CO-CHAIRMAN HARRIS moved to adopt CSHB 22(CRA), Version LS0191\G Cook dated 2/3/99, as the working document before the committee. REPRESENTATIVE OGAN referred the committee to page 1, line 9 paragraph (1) which is new language reading, "if the structure is under construction and not yet occupied;". On page 1, line 11, the word "actual" was inserted before "possession". Representative Ogan believed that language protected the right to privacy as well as due process. CO-CHAIRMAN HALCRO noted that the requirement of written permission was not included in the proposed CS. REPRESENTATIVE OGAN agreed and explained that he did not sense at the last hearing that the members or the assessors supported written permission. Number 346 REPRESENTATIVE MURKOWSKI inquired as to the meaning of "actual possession", especially regarding a tenant situation. She asked if the assessors had an opinion on this language. REPRESENTATIVE OGAN said that he had not discussed the language with the assessors. Under the constitution the right to privacy extends to renters as well as owners. Representative Ogan believed that a renter should have the right to refuse access to the dwelling. If the owner of the property wants the assessor to enter the property, then the owner can contact the assessor and encourage the use of a court order to enter. Number 380 STEVE VAN SANT, State Assessor, Department of Community & Regional Affairs, emphasized the industry policy that when an assessor is refused entry the assessor leaves. Mr. Van Sant did not have a problem with the "actual possession" language. In response to Co-Chairman Harris, Mr. Van Sant said that he had seen the proposed CS and did not have a problem with that. Number 412 REPRESENTATIVE DYSON moved to report CSHB 22(CRA) out of committee with individual recommendations. There being no objection, it was so ordered. CO-CHAIRMAN HALCRO noted that HB 22 was given an additional referral to House Judiciary. ADJOURNMENT There being no further business before the committee, the House Community & Regional Affairs Standing Committee meeting was adjourned at 9:15 a.m.