HOUSE FINANCE COMMITTEE February 1, 1999 1:35 P.M. TAPE HFC 99 - 13, Side 1. TAPE HFC 99 - 13, Side 2. TAPE HFC 99 - 14, Side 1. CALL TO ORDER Co-Chair Mulder called the House Finance Committee meeting to order at 1:35 P.M. PRESENT Co-Chair Therriault Representative Foster Co-Chair Mulder Representative Grussendorf Representative Austerman Representative Kohring Representative Bunde Representative Moses Representative G. Davis Representative Williams Representative J. Davies was not present for meeting. ALSO PRESENT Robert Poe, Commissioner, Department of Administration; Janet Clarke, Director, Division of Administrative Services, Department of Health and Social Services; Leo Lutchansky, Manager, Information Systems, Division of Administrative Services, Department of Transportation and Public Facilities; Joe Reeves, Deputy Director/ASM, Division of Administrative Services, Department of Corrections; Chris Christensen, Administrative Staff Counsel, Alaska Court System. TELECONFERCE Steve Smith, Interim Chief Information Officer, University of Alaska; Mary Lou Burton, Statewide Coordinator, University of Alaska; David Rohwer, University of Alaska. SUMMARY HB 64 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. HB 64 was HELD in Committee for further consideration. HOUSE BILL NO. 64 "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, referenced the handout, "Year 2000 Project Briefing and Background Materials". [Copy on file]. He stressed that Y2K is a "large management" problem for the State and beyond that a large "risk-management" problem which needs to be addressed. He advised that there is upcoming legislation which will address the risk management issues of the State. It has been estimated that the national clean-up costs for Y2K will be between $300 and $400 billion dollars. The estimated costs of the litigation which will follow will be over $1 trillion dollars. Commissioner Poe advised that the best defensive against Y2K litigation would be to take a diligent approach to solving the problems which can be solved. He outlined the proposed three front approach of the State to address this concern. 1. The first step is to guarantee that the State is addressing as many of it's own problems as possible. It is important to recognize that the State has neither the time nor the money to fix all the systems. 2. The second step is to reach-out to local governments for highly delivered services to Alaskans. 3. The last step is reaching-out to small and medium sized businesses. That needs results from Alaska's diversified economy which rests largely on the backs of the small and medium size business. Commissioner Poe continued, explained that the Y2K problem exists because many computer programs were written to recognize the date using only the last two digits. Some computers, when they encounter the "00", might not recognize that as the year 2000 but rather mistakenly as 1900, which would set off a myriad of problems for all systems. Commissioner Poe listed numerous systems which could fail with the lack of recognition of the date, such as medical equipment. The year 2000 problem exists in chips, software, and computers, making it very pervasive. Commissioner Poe noted that the Alaska State government has identified 200 performed functions, of which 89 have been determined "critical". To make that determination, four screening criteria were used: ? Life, ? Health, ? Safety, and ? Economic well being for Alaskans. If a system had major impact on any of those factors, it was then determined to be mission critical. Every system will be covered by a contingency plan. Attachment #1 contains the agency status readiness reports. The report will be published, as well as being placed on a State of Alaska home web site under the year 2000. Commissioner Poe emphasized that the above listed activities would require funding. HB 64 lists all the projects being requested by the Executive Branch, the University and the Alaska Court System. Commissioner Poe explained that the Department of Administration had established a budget review process. The original request was approximately $29 million dollars. The review panel narrowed that amount down to $17 million dollars, at which time, a Medicaid consultant informed the staff it would take $2.2 million dollars to finish an important system. He added that for many of the State's systems, the year 2000 comes on June 30, 1999. Commissioner Poe suggested that some might ask: "Why should we care?" He guaranteed that things will go wrong no matter how much money is spent. There are 110 systems which the State is not going to try to fix. Time and money are big limitations. The important systems must be addressed. The average state has spent about $74.1 million dollars in the past two years. Alaska has spent nearly $791 thousand dollars total. Commissioner Poe continued, agencies could be negatively impacted by failures such as the welfare, Medicaid, and systems that State Troopers use. Part of HB 64 would repay the Risk Management Fund which, to date, the State has been using. That fund is normally used to settle litigation, before they turn into big costs for the State. At this time, $2.1 million dollars has been either spent or committed from that fund. HB 64 would provide for the repayment of each project. The State self-insures through that fund which normally contains $5 million dollars. Co-Chair Mulder asked for further explanation of the overall ratings assigned to the color code used by the Department of Administration in the handout. Commissioner Poe responded that each of these eleven items are the "mission critical systems": ? Procurement system ? Mental Health Trust Authority Grants ? Alaska Longevity Bonus Program ? Alaska Pioneer Homes ? Payroll ? Accounting ? Vehicle & Driver Licensing ? Public Guardian Trust Accounting Systems ? On-Line Personnel Recruitment ? Retiree Payroll ? Supplemental Benefits System Annuity Plan. Commissioner Poe continued, $104 thousand dollars has been requested to covert the Public Guardian system to Y2K compliant with a more stable platform. Also, $250 thousand dollars has been requested to assist with required testing of the retirement system for additional remediation; $400 thousand dollars was requested to complete replacement of the BENECALC system with a Y2K compliant version; $868.4 thousand dollars was requested for the Y2K Project Administration position for 18 months. Commissioner Poe noted that the Department of Administration had been divided into two sections, with the above mentioned group as the first piece and including the information technology group which handles many computer related functions. The second group has a total request for $2.126 million dollars, to be used for the State's mainframe computer. Those mission critical systems would be: ? Computer services ? Network services ? Telephone services ? Telecommunications ? Alaska Public Communications Services ? Desktop LAN/WAN Co-Chair Mulder questioned how the mainframe budget had been determined. Commissioner Poe explained that figure was determined by computing all the operating software needed for that system to work. It is the software that allows all the multi-user environments to happen on a mainframe computer. He offered to provide that detail to Committee members. Co-Chair Mulder restated that the Committee would like the breakdown indicating software and personnel costs. Commissioner Poe replied that there would be small personnel costs associated with the price. Co-Chair Mulder referenced the $868 thousand dollars for project administration and questioned how many employees that would cover. Commissioner Poe replied number that would cover the costs of six people for a period of eighteen months. Some of the positions are borrowed, one of which is borrowed from Office of Management and Budget. Co-Chair Mulder asked if that person's salary would be paid by that budget. Commissioner Poe said that the request was expensive, while emphasizing that the State can not afford "not" to address it. Representative Bunde spoke to the work of the Risk Management Unit and how much they would receive. He continued, previous publications had indicated that the ferries would be Y2K compliant. Additionally, the recorder office was requesting funding to become Y2K compliant. Commissioner Poe responded to the ferry system concern. He pointed out that four or five years ago, no one had considered the magnitude of the Y2K problem. Designated funding is to help guarantee that no Y2K problems occur. Also, the recorder's office had hardware which was dedicated to the SNA transmission protocol and will no longer be supported under OS 390, the new Y2K operating system. That equipment must be replaced. Representative Austerman questioned the amount requested for the Alaska ferry system and additionally, the value of the mainframe. Commissioner Poe offered to provide that information. Representative Austerman asked if the 18-month request amount would pay for FY99 and into March FY2000. Commissioner Poe stated that was correct, and pointed out that he had been working on the problem since August 1998. Before that time, a private contractor had been working with the State. Representative Austerman asked if those agencies not requesting funds would be okay at the change. Commissioner Poe replied that the other agencies had shifted their resources within to reckon with the Y2K problem. Co-Chair Therriault questioned the time-line on the work. Commissioner Poe instructed that the overall changes would be complete by March 2000. Co-Chair Therriault asked why the capital projects lapse date extended for five years. Commissioner Poe replied that it would cross fiscal years, although, was amenable to make the changes necessary to make it more acceptable. Co-Chair Therriault requested more information on the $2.4 million dollars in federal receipts. Commissioner Poe offered to provide that information. He noted that funding would be through the Department of Transportation and Public Facilities and the Department of Health and Social Services Medicaid System. JANET CLARKE, DIRECTOR, DIVISION OF ADMINISTRATIVE SERVICES, DEPARTMENT OF HEALTH AND SOCIAL SERVICES, stated that the Department was requesting $2.4 million dollars to complete Y2K fixes for the Medicaid information system. Of that request, $1.8 million dollars would be federal receipts, used for systems development. The Department will receive 75% federal match, making the general fund request, $600 thousand dollars to match the $1.8 million dollars. Co-Chair Therriault pointed out that "system development" was fairly general. Ms. Clarke responded that it would be used entirely to make the agency Y2K compliant. Co-Chair Therriault requested back up information for that determination. Ms. Clarke advised that the Medicare match information system is basically privatized through a company called First Health Corporation with a mainframe located in Richmond, Virginia. The requested amount is the figure provided by the contractor to make that system Y2K ready. The Medicaid system was put in place in the early 1980's, using a cobalt base system, having one million lines of code with many different dates involved. It is an old system and should have been replaced a long time ago. The last estimate made to replace the system was $30 million dollars. That bid was rejected. Co-Chair Mulder asked if the Department had previously spent money to make the system Y2K compliant. Ms. Clarke acknowledged that the Department had spent $1.2 million dollars. In October, a number of staff with the First Health Corporation stopped working there which affected Alaska's status. At this time, the Department has its top Medicaid manager spending two weeks a month overseeing work currently being done in Virginia. (Tape Change 99-13, Side 2). Ms. Clarke explained some of the problems with the current system. There are many edits in that system, which compare eligibility with dates of service and claim dates. Co-Chair Mulder asked how the $1.2 million dollars already expended had been paid for. Ms. Clarke stated that those dollars had been approved through the operating budget in the Health Purchasing component in the Medical Assistance BRU. Co-Chair Therriault requested further information on the $74 million dollar average spent by other states addressing the Y2K concern. Commissioner Poe offered to provide a sheet indicating each state and their costs. In response to a question by Co-Chair Therriault, Commissioner Poe pointed out that the Retirement System uses an old language called "assembly". Programmers with that knowledge are difficult to find, as the system is quite old. Currently, internal programmers do much of needed work. Co-Chair Therriault questioned the $110 thousand dollar request being made to access the Alaska ferry system. LEO LUTCHANSKY, MANAGER, INFORMATION SYSTEMS, DIVISION OF ADMINISTRATIVE SERVICES, Y2K COORDINATOR, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES, spoke to Co-Chair Therriault's concern. He pointed out that $110 thousand dollars would be used to access all the main line ferries. The estimated price for the Kendicott would be $26 thousand dollars. There are estimates out, also, for the other ferries. He noted that there has been a history of Y2K requests declining, as people become more educated on the problem. He emphasized that the Department owes the public, full assurance that they will be able to travel and that they will be able to move their commodities. Co-Chair Therriault requested a full break down. Mr. Lutchansky offered to provide that information to Committee members. Co-Chair Mulder spoke to the remediation request of $600 thousand dollars. Mr. Lutchansky emphasized that was an estimate and that no assessment had yet been made for the nine vessels. Co-Chair Mulder remarked that the Department indicates that they would budget only what is needed, although, history has proved that the Department will budget what they can receive. Mr. Lutchansky advised that Commissioner Perkins has emphasized that the Department will approach the Y2K concern with practical engineering and caution. Commissioner Poe added, all state agency appropriations would go through the Department of Administration Y2K project office which will be responsible for how those funds are used, except those funds allocated to the University. Co-Chair Therriault reminded Committee members that the numbers proposed are speculative and if funding is appropriated, a five-year lapse would make him uncomfortable. Commissioner Poe explained that a five-year lapse is shown, as there was no alternative way to indicate a lapse during the following fiscal years. Representative Grussendorf asked if there were on-shore aspects to the Alaska Marine Highway System proposal which need addressing. Mr. Lutchansky responded that would be contained in a different component. The terminal buildings are part of a larger effort that would be funded through HB 64 public facilities. The specialized operations will be handled in-house. Commissioner Poe pointed out that the Department of Transportation and Public Facilities had assessed all public service facility connections and airports. He applauded that Department for continually reducing cost projections. Representative G. Davis suggested that computer companies should be responsible for technical computer generated costs. He felt that each group of computer data processing units should be responsible to check with each company to determine how to make them compliant. Commissioner Poe agreed the process is "mind boggling". There is not a computer company that can "fix" the system. There are many problems which vary with each system of embedded chips. Finding embedded chips is a different process for each device. The Department of Administration has attempted to get the best information for establishing the Y2K criteria. Representative Austerman asked at this time, how much has been expended. Commissioner Poe replied that $791 thousand dollars has been spent. Additionally, the Department of Health and Social Services has spent $1.2 million dollars on the Medicaid system of which 75% was federal fund reimbursed. Representative Bunde asked why the Department of Environmental Conservation requested so much for Y2K compliance. Commissioner Poe explained that costs reflect expenses of replacing hardware at the lab. Co-Chair Mulder suggested that it would be logical for the system benefiting from the change to be responsible for funding it. Commissioner Poe replied that all "benefit systems" are currently doing that. Co-Chair Therriault asked further clarification of making changes for the "economic well-being" of the State. Commissioner Poe replied that paying vendors would fall into that class. "Economic well-being" was part of a screening criteria used, an aspect which would guarantee the securing of land record transaction material. There exists a prioritized list that addresses the basic needs of facilities. The Department has worked with Alaska Public Utilities Commission (APUC) to guarantee that utilities are Y2K prepared. JOE REEVES, DEPUTY DIRECTOR/ASM, DIVISION OF ADMINISTRATIVE SERVICES, DEPARTMENT OF CORRECTIONS, spoke to the $1 million dollar request submitted by the Department of Corrections. He pointed out that each of the twelve institutions across the State has a centralized control room. Mr. Reeves explained that the unit at Cook Inlet, which houses the most dangerous inmates, has a system which needs to be replaced in order to operate the facility safely. It will be replaced with a new Y2K compliant system which will incorporate all day to day programs necessary to safely operate the facility. All other systems operate on an electronic pulse system. CHRISTOPHER CHRISTENSEN, ADMINISTRATIVE STAFF COUNSEL, ALASKA COURT SYSTEM, spoke to the Court's request of $182.5 thousand dollars. He pointed out that the Judicial Branch was the last of the three systems to become computerized, which, for purposes of solving problems associated with Y2K, has been beneficial. Five years ago, the Legislature gave the Courts money to purchase and redesign some of the accounting software making sure it was Y2K compliant. The proposed request represents the telephone systems in twenty-nine courthouses and security systems in five courthouses. The telephone systems are designed to tie into the court rooms, with the recording equipment and sounding system so that the public defenders, attorney generals and private litigants do not have to fly to a specified location for a private hearing. Additionally, the security systems in the five largest courthouses including Anchorage, Fairbanks, Kenai and Palmer are not Y2K compliant. STEVE SMITH, (TESTIFIED VIA TELECONFERENCE), DEPUTY DIRECTOR/ASM, DIVISION OF ADMINISTRATIVE SERVICES, INTERIM CHIEF INFORMATION OFFICIER, UNIVERSITY OF ALASKA, spoke to the Y2K request for the University of Alaska. He referenced Attachment #2, "Year 2000 Project Status Report-University of Alaska". [Copy on file]. The request addresses six major phases: ? Year 2000 awareness ? Inventory & assessment ? Remediation ? Testing & validation ? Implementation ? Contingency which overlaps the other phases. Spending for Y2K will come to the statewide office and will go through campus groups. Criteria for spending have been established within the University and how the projects are prioritized. Those funds will address needs with the hardware and the actual applications. The first criteria determined if the system would be life threatening. The second component would be to determine if it were mission critical. (Tape Change, HFC 99 - 14, Side 1). Mr. Smith addressed the contingency plan. The University has no direct control of getting some services to needed places. In some cases, there will be a dollar number involved with those considerations. Part of the difficulty of dealing with the University is the distributed nature of the environment. After the mission critical criteria have been addressed, there is additional concern that all of the University's research material be secured. Some of the data is critical to the State and for the University. The University of Alaska is attempting to secure these systems. Mr. Smith advised that NASA, NOA and the Department of Defense have issued mandates to make sure that the systems which they have funded, are Y2K compliant. In some cases, there has been money fronted by those agencies to help secure that safety. Co-Chair Therriault questioned the status of the Fairbanks campus electrical power plant. Mr. Smith replied that plant has passed most of the inventory, yet needs a bit more testing. University of Alaska anticipates a final report from that agency soon. Co-Chair Therriault asked if the campus would be able to run without generating it's own power. Mr. Smith replied, currently, there is back up with the Golden Valley system. He added that heat could be an additional problem, currently with no known back up. Co-Chair Mulder asked if the $2 million dollars borrowed from the Risk Management Fund would be in addition to the $2 million dollars borrowed by Department of Administration. Commissioner Poe stated it was. MARY LOU BURTON, (TESTIFIED VIA TELECONFERENCE), STATEWIDE COORDINATOR, UNIVERSITY OF ALASKA, clarified that the $2 million dollars for the University was not in addition to the $5 million dollars. The total cost is estimated at $5 million dollars. Representative G. Davis asked if University of Alaska was self-insured. Ms. Burton stated they are. Commissioner Poe pointed out that for the State, it is a different matter, in so much as they have a general liability policy and an aviation policy. To date, the State has not accepted Y2K riders. Representative Austerman asked why the warranty orders effective January 1999, were not issued prior to that time. Mr. Smith reiterated that this has been an education process for everyone. Y2K is not just an information technology issue and is not clearly understood by government or business in general, exactly what the problem is. In response to Representative Austerman, Commissioner Poe noted that Department of Administration has had requirements on contracts for about one year for Y2K compliance. He added that the Department of Administration had not scrutinized the expenses requested by University of Alaska. Representative Grussendorf recommended that the Commissioner and the Committee should check all expenses. Commissioner Poe advised that the University has handled their own effort with Mr. Smith in the forefront. Co-Chair Mulder asked if the University designated staff for the Y2K project coordination concern would be borrowed or new hire. Mr. Smith stated that it would be both. Co-Chair Mulder asked if the borrowed person's spots could be left unfilled and unfunded in the FY2000 budget. Mr. Smith replied that in those positions, the person could have been pulled from a particular duty now and would be filled around the edges by other employees that may come on for a term funded position. Ms. Burton added that the University of Alaska has found that if there is not staff specifically dedicated to tasks, they are not getting addressed. Representative Austerman requested a breakdown from both the University of Alaska and Department of Administration indicating all staff and which departments they have been borrowed from, which are new and the dollar amount associated with each position. Ms. Burton stated that info would be provided. Co-Chair Mulder pointed out that the State's coordination efforts was requesting $800 thousand dollars, and that the University was requesting $500 thousand dollars. He suggested that these size projects were requesting a lot of overhead. He acknowledged that distance factors could drive up the costs. HB 64 was HELD in Committee for further consideration. ADJOURNMENT The meeting adjourned at 3:25 P.M. H.F.C. 11 2/01/99