RS20215: Year 2000 Computer Problem: State Government Issues

Rita Tehan

Information Research Specialist
Information Research Division

Updated September 30, 1999

Summary

The federal government sends and receives data from the states in support of many social service programs. Examples of such programs are: Medicare, Medicaid, Welfare, Food Stamps, and Unemployment Insurance. The federal government will not be able to deliver critical social services if data exchanges with state governments are not Y2K- compliant, yet there is no complete picture of their readiness. This report will be updated as events warrant. For additional information on the Y2K problem, see the CRS Electronic Briefing Book: Year 2000 (Y2K) Computer Problem at: http://www.congress.gov/brbk/html/eby2k1.html.

Scope and Significance of the Problem

The federal government sends and receives data from states in support of many social service programs. According to the chairman of the President's Council on Year 2000 Conversion, approximately 165 federal interfaces with state systems have been identified.

State governments supply data to federal computer systems, to administer such programs as:

• Food Stamps
• Child Nutrition Programs
• Women and Infants with Children
• Medicaid
• Temporary Assistance for Needy Families
• Child Support Enforcement Programs
• Low Income Housing Energy Assistance Programs
• Child Care
• Child Welfare
• Unemployment Insurance

The federal government will not be able to deliver critical social services if data exchanges with state governments are not Y2K-compliant; yet the nation does not have a complete picture of their readiness. (Medicare is a federal program, not state-run, and therefore not on the Office of Management and Budget (OMB) list of 10 key "high-impact" programs).

The Senate Special Committee on the Year 2000 Technology Problem released Investigating the Year 2000 Problem: The 100 Day Report on September 22, 1999. According to the National Association of State Information Resource Executives (NASIRE), as of August 3, 1999, only three states were claiming completion of the implementation phase for all mission-critical systems. The bulk of the states, 38, reported being between 75% and 99% complete with implementation. All states reported being a actively engaged in internal and external contingency planning, but 14 states reported that the deadline for completing the plan was October 1999 or later. (The Senate report is available at: http://www.senate.gov/~y2k/documents/100dayrpt/. Information on state and local government readiness can be found at the "General Government Services" link under the "Sectors" heading.)

The head of the General Accounting Office testified on June 22, 1999 before a joint hearing of the Senate Appropriations Committee and the Special Committee on the Year 2000 Technology Problem that some state systems are not scheduled to be compliant until the last quarter of 1999. Computer fixes finished late in the year pose a "major risk," according to GAO. Members of Congress have expressed concern that federal agencies will not have enough time to properly test programs if their partners (state and local governments) do not finish their repairs soon. For detailed information on state compliance efforts, see GAO's report, Year 2000 Computing Challenge: Delivery of Key Benefits Hinges on States' Achieving Compliance, June 23, 1999, at
http://www.gao.gov/new.items/a299221t.pdf.

The General Service Administration's CIO Council developed a Federal/State Data Exchange database, available at: http://Y2Kexchange.policyworks.gov/ maintained by GSA, which centralizes federal and state governments' Year 2000 data exchange information. According to the June 1999 Office of Management and Budget's Progress on Year 2000 Conversion 9^th Quarterly Report, states have decided not to provide updates to the database, given progress to date and the need to focus on critical systems.

The Office of Management and Budget has issued several new guidance documents:

• On August 6, 1999, Revised Reporting Guidance on Year 2000 Efforts (issued August 6, 1999, M-99-21), revises the quarterly reporting requirements and creates a new monthly reporting requirement on the status of unfinished mission critical systems.

• Minimizing Regulatory and Information Technology Requirements (issued May 14, 1999, M-99-17) directs agencies to take a common-sense approach to minimize regulatory actions or information technology changes to their internal systems that could undo Year 2000 fixes or create complications for agencies' systems for those of regulated entities.
• Business Continuity and Contingency Planning for the Year 2000 (issued May 13, 1999, M-99-16) directs all agencies, including small and independent agencies, to submit to OMB by June 15 their business continuity and contingency plans.
• Assuring the Readiness of High Impact Federal Programs (issued March 26, 1999, M-99-12). Federal agency chiefs are required to meet with state officials to conduct testing and develop contingency plans. In addition, federal agencies will write quarterly status reports on their progress.

Status of States' Y2K Readiness Efforts

As of August 1999, 17 agencies have made 100% of their data exchanges with the states Y2K compliant and have successfully tested them on both sides, or have successfully bridged the data exchanges with both parties concurring. The agencies are:

• Agriculture
• Commerce
• Education
• Energy
• Federal Emergency Management Agency
• General Services Administration
• Health and Human Services
• Housing and Urban Development
• Interior
• Labor
• Nuclear Regulatory Commission
• National Science Foundation
• Office of Personnel Management
• Social Security Administration
• U.S. Postal Service
• U.S. Agency for International Development
• Veterans Affairs

According to the President's Council on Year 2000 Conversion's Third Quarterly Report on the Nation's Readiness for the Year 2000 Date Change, dated August 5, 1999, 40 states report that they are at least 75% complete with implementation work for mission-critical systems. On releasing the report, John Koskinen, the Council's chairman, stated that the federal government can encourage and educate state and local governments to prepare for Y2K, but it has no authority to force small businesses and governments to fix their systems. (The 61-page report is available at: http://www.cio.gov/files/10thQuarterlyReport.pdf. State information begins on page 17.)

In the OMB's 10th Quarterly Report, Progress on Year 2000 Conversion, dated September 13, 1999, it was reported that 96% of data exchanges between the federal and state governments are "now Y2K compliant." (The 94-page report is available at: http://www.cio.gov/files/10thQuarterlyReport.pdf. State information begins on page 72.)

In November 1998, the General Accounting Office (GAO) surveyed the state systems used in federal welfare programs. The study revealed that the majority of them were not yet Year 2000 compliant. Failure to complete Year 2000 conversion could result in billions of dollars in benefits payments not being delivered. In February 1999, GAO testified that while some progress had been achieved, many states' systems were not scheduled to become compliant until the last half of 1999. Accordingly, GAO concluded that business continuity and contingency planning was even more important in the event of system failures.

The Health Care Financing Administration (HCFA), which manages Medicare and Medicaid, has faced significant challenges in completing systems renovations and testing on a timely basis. In an attempt to prevent problems for Medicaid systems, HCFA has recently hired a contractor to independently verify and validate state systems.

The July 1, 1999 switch to fiscal year 2000 appeared to arrive free of Y2K bugs, according to the National Association of State Budget Officers. The organization surveyed 15 states and found normal operations, as states began processing bills, payrolls, and other programs against fiscal 2000 appropriations. Forty-six states and many local governments begin their fiscal year in July.

Proposals

The Chairman of the President's Council on Year 2000 Conversion has expressed concerns about the Year 2000 readiness of state and local governments and has developed initiatives to address them. For example, the Council established working groups on state and local governments and tribal governments. The Chair of the Council also participates in monthly multi state conference calls. In March 1999, the Council, in association with the National Governors' Association, convened Year 2000 summits with state and U.S. territory coordinators. On May 24, 1999, the Council announced a nationwide campaign to promote "Y2K Community Conversations" to support and encourage efforts of government officials, business leaders, and interested citizens to share information on their progress.

The General Accounting Office recommends that OMB may want to consider establishing Year 2000 target dates (such as when renovation, validation, and implementation should be completed) for states. In January 1999, OMB required that federal oversight agencies include the status of selected state human services systems in their quarterly reports. OMB also required that by April 15, 1999, federal agencies submit a schedule of how they will help states administer federally-supported programs. OMB also asked that agencies report the date when each state's systems will be Y2K-compliant.

OMB is encouraging states to develop contingency plans in conjunction with their federal agency counterparts. Some states are relying upon the U.S. Postal Service to deliver paper versions of services and payments. While the USPS "has a reasonable level of assurance" that it will be able to deliver the mail, it is behind schedule in repairing its own systems.

As part of their contingency planning, some federal agencies explored the possibility of making some payments to beneficiaries, contractors, and others in December that would otherwise be due in January. However, the Administration determined that such actions are not necessary at this time, given the level of readiness of agency payment systems and agency business continuity and contingency plans. Nevertheless, agencies may still consider making early payments and may request authority from OMB to pay certain benefits early if certain criteria are met.

As of June 1999, 46 states and the District of Columbia are considering Y2K legislation, and 19 states have passed Y2K legislation. Most of this legislation is focused on eliminating or limiting the liability that states would otherwise face for failures to provide services due to Y2K problems. For a listing of state Y2K legislation, see the National Conference of State Legislatures Web site's "Y2K Laws and Legislation" at: http://www.ncsl.org/programs/lis/Y2K/legal.htm.

In addition, a list of pending state Y2K legislation
http://www.itaa.org/year2000/legis2.htm and passed state Y2K legislation
http://www.itaa.org/year2000/legis3.htm can be found at the Information Technology Association of America's (ITAA) Web site.

Cost of Y2K Compliance

As of March 1, 1999, based upon updated information provided by states to the National Association of State Information Resource Executives (NASIRE), state governments expect to spend a total of more than $3.5 billion to address the Y2K problem. According to fourth quarter 1998 (calendar year) spending reports, states had spent approximately 59% of their Y2K budgets. For detailed information on state efforts to address the Year 2000 problem, see NASIRE's Year 2000 Remediation Results survey at: http://www.amrinc.net/nasire/Y2K.

States' Y2K Readiness Information (Web Sites)

The National Association of State Information Resource Executives conducts a continuing survey of individual state Y2K preparedness: Quick Survey on Year 2000 Remediation in the States. The survey is available at:
http://www.amrinc.net/nasire/Y2K/.

The States.org Year 2000 Program Information Web site is a compilation of links to states (and Canadian provinces) with Y2K Programs (Note: this site can be somewhat slow to load). The site is available at:
http://www.states.org/bycat/display.cgi?categID=5000057.0

The Federal Emergency Management Agency (FEMA) has a Y2K Best Practices Web page which provides information on how individual states are managing the Y2K issue. Click on the graphical map of the United States for details about state issues and compliance at http://www.fema.gov/y2k/bst_prac.htm.

Federal Legislation Regarding State Y2K Issues

H.R. 1599 (Davis)

Year 2000 Compliance Assistance Act -- Would permit state and local governments to purchase Year 2000 products and services off the multiple awards schedule administered by the General Services Administration's Federal Supply Service.

H.R. 909 (DeGette)

Y2K State and Local Government Assistance Program (GAP) Act of 1999 -- Would direct up to $40 million out of the Y2K Emergency Supplemental Funds (of the FY1999 Omnibus Appropriations) to establish a relief program to fund no more than 75 grants and give priority to state systems processing federal welfare programs. No state would receive more than two grants, and the program would be managed by the U.S. Department of Commerce. This is a companion to S. 174, Y2K State and Local GAP (Government Assistance Programs) Act of 1999.

H.R. 1022 (Underwood)

A bill to authorize the Secretary of Commerce to make grants to states to correct Y2K problems in computers that are used to administer state and local government programs.