January 15, 1999

Good morning, Mr. Chairman. As Chair of the President's Council on Year 2000 Conversion, I am pleased to appear before the Committee to discuss the Federal Government's progress on the Year 2000 (Y2K) computer problem and contingency funding for this important work.

I appreciate the strong support the Committee has given to Federal agencies and their Y2K efforts. I especially appreciate your leadership, Mr. Chairman, in building upon the President's fiscal 1999 request for a general emergency fund to create a specific, designated emergency contingency fund for Y2K remediation.

The creation of this fund was an important step because, as you know, the Y2K problem presents us with a management challenge unlike any we have ever seen. As a result, the experience in the private sector as well as in Federal agencies has been that it is impossible to predict with total accuracy the precise demands associated with completing Y2K work. With 350 days remaining, the Government does not have time for the normal supplemental appropriations process to provide funding for critical needs in this area, which is why the contingency funding you have provided is so significant.

Federal Agency Progress

I am pleased to report that the Federal Government continues to make strong, steady progress in solving its Y2K problems.

As you know, the Federal Government is the only large organization in the world with a transparent process for reporting on its progress in addressing the Y2K problem. Each quarter, agencies report in detail to the Office of Management and Budget (OMB) and to Congress on their Y2K efforts. The number of mission-critical systems in each agency has been identified, and progress is reported in terms of assessment, remediation, testing, and implementation. For the past two years, OMB has been issuing public summary reports on the status of agency Y2K activities.

According to the most recent OMB report released last month, 61 percent of all Federal mission-critical systems are now Year 2000 compliant -- more than double the 27 percent compliant a year ago. These systems have been tested and implemented and will be able to [begin page 2] accurately process data through the transition from 1999 into the Year 2000. The report also states that, of critical systems requiring repair work, 90 percent have been fixed and are now being tested.

Let me share a few examples of recent progress. As of November 15, the Small Business Administration (SBA) had completed work on all of its critical systems, ensuring that SBA assistance to the Nation's 24 million small businesses will not be interrupted in January 2000. The Interior Department posted a 50 percent increase in its number of Y2K compliant systems compared to the last quarter that includes the U.S. Geological Survey's National Seismic Network, which provides early warnings of earthquakes. The Education Department's number of critical systems, many of which are an integral part of processing student loans, that are now Y2K compliant increased by more than one-third. And at the end of last month, the President announced that, thanks to the joint efforts of the Social Security Administration and Treasury's Financial Management Service, the Social Security system is now Y2K compliant.

The President has established an ambitious goal of having 100 percent of the Government's mission-critical systems Y2K compliant by March 31, 1999 -- well ahead of many private sector system remediation schedules. Although much work remains, we expect that over 80 percent of the Government's mission-critical systems will meet the March goal, and monthly benchmarks with a timetable for completing the work will be available for every system still being tested or implemented. We expect that all of the Government's critical systems will be Y2K compliant before January 1, 2000.

This does not mean that we are without significant challenges. While the Defense Department continues to make progress in addressing its massive Y2K challenge, OMB reported that DOD's rate of progress indicates that all of its systems will not meet the March goal of 100 percent compliance. At a day-long meeting last Saturday at the Pentagon to review the status of all DOD mission-critical systems, Deputy Secretary Hamre and I were advised that most systems will either meet the March date or be in the process of implementation. In the Department's case, implementation includes installing completed Y2K-compliant systems across the services and the Department. According to the last OMB quarterly report, the Energy Department had completed testing on only 53 percent of its critical systems -- below the government-wide average. Secretary Richardson made clear at the beginning of his tenure at the Department that this issue will receive his personal attention.

At HHS's Health Care Financing Administration (HCFA), HCFA has finished renovating and testing all of its internal systems. Although a tremendous amount of systems work and contingency planning will remain after March, most Medicare contractors are expected to complete renovation and testing by the government-wide goal. The State Department faces a significant challenge in simultaneously managing its complex Y2K project and completely replacing information systems installed around the world. At the Transportation Department, the FAA's rate of progress has improved dramatically, but the percentage of DOT's critical systems that have been tested and implemented continues to lag behind the government-wide schedule.

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Nonetheless, I am confident that the air traffic system will be totally compliant well in advance of the Year 2000.

Let me be clear: Fixing the Year 2000 problem in Federal agencies is not a question of commitment. As you know, since last summer I have been participating in the monthly Y2K meetings of the senior managers in agencies whose systems are most at risk. I can attest that they and their staffs are focused on getting the job done. It is more a question of doing whatever it takes to overcome obstacles and accelerate progress in remediating systems. I am confident that these agencies will be able to do that and ensure that their critical systems will be ready for the Year 2000.

Contingency Funding

The availability of emergency contingency funding is playing an important role in the ability of agencies to meet the Y2K challenge head-on, even as they encounter new and unexpected Y2K expenditures. It has been especially helpful to have an expedited process for OMB and congressional review of agency needs.

Last year's Omnibus Appropriations bill provided a total of $3.35 billion -- $2.25 billion for non-defense agencies and $1.1 billion for defense -- for emergency expenses related to Year 2000 conversion of Federal information technology systems and related expenses. Since the completion of the fiscal 1999 appropriations process, OMB has worked with the agencies to identify activities that were included in the President's fiscal 1999 budget that Congress directed to be funded from the contingent emergency reserve as well as critical requirements that have been identified since the President's budget was transmitted last February. For these new requirements, OMB is reviewing each agency request carefully to ensure that funds requested were unanticipated and will solve a Year 2000 problem.

Of the $2.25 billion available for non-defense agencies, $1.2 billion has been allocated to date. On November 6, 1998, OMB requested the release of $891 million in non-defense funding for 17 agencies. OMB requested an additional $338 million in non-defense funding for 21 agencies on December 8. These transfers will support a range of activities to ensure that important computer systems will operate smoothly through the Year 2000 and beyond. Federal agencies would use this funding for additional remediation of information technology systems, testing to ensure that systems are Y2K compliant, replacement of embedded computer chips, creation and verification of continuity of operations and contingency plans, and outreach to non-Federal entities by agencies in support of the Council.

I have submitted for the record with my testimony a copy of the December 8 OMB document, which summarizes both requests. OMB has also notified agencies that, should they continue to identify unforeseen Year 2000-related funding requirements, they should forward these requirements to OMB for consideration as items that may be funded from the contingent [begin page 4] emergency reserve. A third request is expected to be transmitted to Congress before the end of the month.

With regard to the $1.1 billion made available by Congress for defense activities, the Defense Department furnished OMB with a report on January 8 on how DOD plans to use its portion of the supplemental appropriation. OMB is currently reviewing the proposal and anticipates making recommendations shortly.

It has been clear from the start that to operate effectively, Federal systems often depend upon a large number of outside, non-Federal systems. State systems that support State administered Federal programs such as unemployment insurance and Medicaid must work properly for Federal systems to effectively carry out their tasks in these areas. At U.S. embassies around the world, Federal systems depend on the functioning of host country systems for their operations.

The Federal Government does not have a responsibility to fix, or pay for fixes to, non Federal systems -- whether they be in the private sector, at the State and local level, or internationally. However, in some areas, it is appropriate for the Federal Government to support planning activities and the sharing of best practices related to remediating non-Federal systems, insofar as this contributes to Federal interests and the effective operation of Federal systems. This support could be critical in key infrastructure areas such as telecommunications and transportation, where States and international entities are working together to ensure a seamless transition to the Year 2000.

We have provided the Committee copies of the most recent OMB report on Federal agency Y2K progress and the Council's quarterly summary of assessments regarding private sector and State and local Y2K efforts.

Looking Forward

Progress is being made on the Y2K problem -- in the Federal Government, at the State and local level, in the private sector, and internationally. But much work remains to be done. As I've said often, not every system is going to be fixed by January 1, 2000. However, I am confident that difficulties for the economy or the public will not be the result of a direct failure of Federal systems. Agencies are focused on this problem and are managing toward ambitious goals for completing their work. The Federal Government's successful resolution of the Y2K problem in its systems will be a tribute to the skill, dedication, and hard work of thousands of career employees working across the Government. It is my pleasure to assist them in whatever way I can as part of this vital national effort.

I thank the Committee for its support on this important matter, and I would be happy to answer any questions that you may have.