Fed Official Calls Year 2000 Bug ‘Real and Serious’

U.S. businesses are likely to spend at least $50 billion fixing year 2000 computer glitches, a Federal Reserve official said Tuesday, providing the federal government’s first official estimate of such costs.

The massive effort to reprogram millions of computers to recognize dates in the new millennium and, therefore, continue to function, could trim U.S. economic growth by a tenth of a percentage point in each of the next two years, he added.

The problem is “real and serious,” Federal Reserve Board Gov. Edward Kelley told a Senate committee, saying the total worldwide repair bill could top $300 billion. Kelley’s projections bolster earlier forecasts by corporate analysts.

Millions of computers--some of which are central to running financial markets, air traffic control systems and even elevators in office buildings--cannot distinguish between the year 1900 and the year 2000 because a programming practice expressed years as two digits. Unless they are repaired, these systems will process the year 2000 as “00,” and the computer will think it’s somehow been transported back to 1900, which could cause it to shut down or turn out erroneous data.

As 2000 gets closer, this “bug” is attracting high-level attention in both government offices and corporate boardrooms. The Securities and Exchange Commission is now requiring companies with publicly traded shares to disclose how much they’re spending to fix the problem and how far along they are.

The Securities Industry Assn. on Tuesday issued a letter to the SEC estimating that it could spend as much as $6 billion over the next three years changing its computer systems.

“The U.S. securities markets are very aware of the need to convert their systems and are making a strong, widespread commitment of time and money for this effort,” the SIA said.

And Tuesday, the Senate took the unusual step of establishing a committee solely to press for rapid work on the issue.

Of concern is not just how much it will cost to fix the glitch, but also whether critical government and private-sector systems will be repaired in time. A growing number of economists and industry analysts, pointing to recent surveys that indicate many U.S. and foreign businesses have been slow to deal with the problem, predict there will be business slowdowns and shutdowns as critical systems fail.

They contend that U.S. economic growth--now projected at about 2% a year--could slow to recession levels at the turn of the century. “Disrupting the flow of information could be just as distressing as the disruption in the flow of oil in 1973 and ‘74,” said Edward E. Yardeni, chief economist at Deutsche Morgan Grenfell Inc. in New York. Yardeni said he believes “there’s a 60% chance” of a recession starting in 2000 because of date-related computer problems.

Although Kelley told the committee that prospects of a “deep recession” are “probably a stretch,” the Fed’s analysis did not extend into the year 2000 and beyond, and did not include the economic impact of possible business slowdowns or shutdowns resulting from date-related system failures.

For many large firms, making their computer systems understand the year 2000 is proving to be a Herculean task. BankAmerica Corp., for instance, must fix 2,500 separate computer systems. The San Francisco-based bank has 1,000 employees devoted to the project and has also hired several hundred outside contractors in an effort that will cost about $380 million, according to David Coulter, the bank’s chief executive.

About $100 million of that amount is being used to create a bonus pool for the bank’s technology employees. Those who shun the dozens of lucrative job offers they’re now receiving from competitors will share in the pool if they see the projects through, Coulter said.

Although Coulter thinks the bank will be ready when 2000 rolls around, it has already begun testing whether the programming fixes are working smoothly. “Some of the stuff we’re getting [from outside contractors] is not working,” he said in a recent conversation with Washington Post reporters and editors.