OMB cracks 2000 whip, might suspend IT funds

Although the Office of Management and Budget this month issued get-tough year 2000
warnings and threatened to bar systems modernization spending at four agencies, it is
unlikely that any agency will lose much--if any--funding, administration officials said.

In the wake of its latest quarterly report to Congress, OMB told the Agriculture,
Education and Transportation departments and the Agency for International Development that
unless OMB sees immediate improvements, the agencies risk severe information technology
budget limits during the next two years.

Right now, the OMB warning is just that, one administration official said. OMB has not
set any concrete milestones that it expects the four agencies to meet. "They just
have to do things now to convince us that they are going in the right direction. We will
make the [funding] decisions on a case-by-case basis. We want to ensure that we have their
attention," he said.

OMB officials said they hope the warning will make all agencies realize that the
administration expects significant progress soon in year 2000 efforts governmentwide.

Agriculture's chief information officer Anne Thomson Reed responded to OMB's warning by
sending USDA bureau chiefs a memo chastising them for jeopardizing the department's IT
projects.

"As a result of our performance, OMB has proposed and is prepared to impose severe
limits on fiscal year 1998 and 1999 acquisition of IT resources," Reed said in her
memo. "We cannot afford a two-year limitation on our departmental IT
initiatives."

An OMB official said agencies' IT budgets for next year will not be affected. "The
earliest time their budgets might be affected is October 1998," he said. But even if
OMB carries out its threat, the official said, agencies likely would receive money for
replacing systems that agencies were going to retire as part of the 2000 work.

Renato DiPentima, president of federal systems for SRA International Inc. in Arlington,
Va., and former Social Security Administration deputy commissioner for systems, said OMB
was right to issue the warning.

Many agencies were dragging their feet, gambling on the probability "that the
longer they delayed, the greater the chances they would get additional money" for
their 2000 work, he said. Agencies still back on the starting line are going to have to
work hard "and do some very clever and less-than-perfect things" to get their
software ready for 2000, DiPentima said.

In amassing reports from the 24 largest agencies for its quarterly report to Congress,
OMB found that half had missed the June deadline for completing systems inventories.

The House Government Reform and Oversight Subcommittee on General Government,
Information and Technology issued a new round of grades after reviewing the latest report.
The subcommittee gave 12 agencies Cs, Ds or Fs.

Rep. Steve Horn (R-Calif.), the subcommittee's chairman, said he was disappointed by
the new reports.

"Last year, agencies could achieve a good grade by having a complete set of
plans," Horn said, referring to the subcommittee's first scorecard on federal 2000
work. "This year, plans are not enough. Action is required."

Subcommittee staff members acknowledged that the congressional grading is subjective
because agencies such as NASA received failing grades for not having finished the
assessment. The space agency has done 96 percent of the work, the OMB report said. Other
agencies, including the departments of Agriculture, Education and Defense have completed
less than 50 percent of their assessments.

The OMB report said agencies also reported that they need $1.1 billion more this year
than what they had predicted in May for the 2000 work. OMB said the latest agency reports
put the millennium date code change cost at $3.8 billion--up from $2.7 billion in May--and
warned even that figure may increase.

OMB officials said the latest cost estimates are not a surprise.

"When we first estimated the cost of the year 2000 work, I stated loudly and
clearly--I thought--that it was a preliminary figure and as agencies proceeded through the
assessment, the figure would undoubtedly increase," said Sally Katzen, administrator
of OMB's Office of Information and Regulatory Affairs.

"I am neither surprised, concerned nor appalled. I anticipated a change in the
numbers, and this just indicates that agencies are taking seriously their
responsibility," she said.

Of the $1.1 billion increase, revised Treasury estimates accounted for $736 million.
The department told OMB it would need $1.1 billion this year to fix the systems code. Its
May report had the estimate at $369 million.

Katzen said more than 80 percent of the increase in Treasury's estimate is attributable
to IRS systems work.

The president's fiscal 1998 budget proposal sought $84 million for IRS' 2000 work, but
the agency later asked Congress for an additional $258 million, which lawmakers approved.

In the latest OMB report, Transportation said it needed $265 million, up from $92
million. DOD also increased its estimate, by $92 million, to $1.4 billion.

Four agencies--NASA and the Energy, Housing and Urban Development, and Interior
departments--lowered their estimates by $16 million.

Estimates from the Education and State departments, Environmental Protection Agency,
Social Security Administration, Office of Personnel Management, Nuclear Regulatory Agency
and Federal Emergency Management Agency did not change.

The OMB report said that of the 8,562 mission critical systems agencies have identified
so far, 62 percent will be repaired, 13 percent will be replaced and 5 percent will be
retired. So far, 19 percent are year 2000-ready.

Staff writers John Breeden II, Florence Olsen and Peyman Pejman contributed to this
article.