For economy, Y2K bug is contagious

From the billions spent to make sure systems don't crash to folks cashing in on fear, the effect is widespread.

By AMEET SACHDEV

© St. Petersburg Times, published May 2, 1999

A bug that costs billions Y2K may lead to why not sue Coaxing computers to comply with 2000 As Y2K work wanes, companies search for new niches Buy a bug Preparedness progress report Their Y2K motto: Be prepared Calm, not calamity, in local forecast for Y2K Firms say they're prepared for Y2K

Sandra Averbeck recently bought a water purifier that can treat up to 100 gallons and a portable solar shower used by campers. But she's not planning an outdoor vacation.

The St. Petersburg resident is preparing for fallout from year 2000 computer breakdowns. The Y2K problem, as it is known in computer jargon, makes her antsy enough to stockpile necessities. "I'm looking at my preparations like insurance," said Averbeck, 58.

Such public jitters prompted Publix Super Markets to treat the arrival of the new millennium much like a hurricane drill. The Lakeland grocery chain is lining up more warehouses and trucks to build up supplies of non-perishable foods, bottled water and batteries.

From consumers to corporations, the onset of 2000 is leaving its mark on the U.S. economy. Companies and governments are spending hundreds of billions of dollars to tame what some call the millennium bug.

Some of those dollars are lining the coffers of computer consultants brought in to exterminate the problem. Other entrepreneurs figure New Year's Day means payday regardless of whether computers fail when the clocks strike midnight on Dec. 31. They are hawking everything from T-shirts to survival kits. Government regulators and law enforcement officials are warning consumers to watch out for scams. Fears of civil unrest have helped fuel gun sales.

This singular economic phenomenon stems from the fact that computer programs frequently use two digits to represent years, like 98 for 1998. So when 1999 ends, computers might appear baffled about what comes next or might respond as if 00 meant 1900 instead of 2000.

Afflicted machines could crash or, just as dangerously, spew out erroneous data. With computers running everything from power grids to bank machines to air traffic, the range of services that could be affected is vast.

The direst predictions -- widespread blackouts, financial strife and food shortages -- are improbable. But computer experts are not arrogant enough to suggest there won't be minor interruptions.

At home, your old VCR fails to record a show because it mistakes the year. Your car's dashboard falsely indicates the vehicle is due for a tune-up. At work, the building security system refuses to read coded cards or keys. Production schedules at factories are thrown off by improper date-coding.

The year 2000 might not be a technological meltdown, but its economic consequences swirl far beyond computer programers. The Federal Reserve, which supplies cash to the banking system, plans to print $50-billion in extra currency, lifting the total in circulation to $200-billion, to assure consumers that banks will have plenty of paper for those who want to have extra cash on hand before the end of the year.

If more people follow Averbeck's example and stockpile supplies, manufacturers and retailers will have to be ready. That could provide a jolt in the second half of 1999 to an already sizzling economy. But the boost could be short-lived if companies are stuck with bulging inventories next year. Among economists, there's even talk of recession.

"As it becomes clear our national infrastructure will hold, overreaction becomes one of the biggest remaining problems," John Koskinen, chairman of the President's Commission on Year 2000 Conversion, told the New York Times.

Fix-it estimates are rising

The U.S. government has raised its estimate by $400-million to $6.8-billion for fixing the Y2K bug among federal agencies, and costs are expected to rise again. Florida is expected to spend about $81-million

The nation's 15 biggest banks now foresee a combined bill of $3.6-billion, up from earlier estimates. Grocery store chains are spending an average of $27-million to prepare computers and most expect to have systems installed by midsummer, according to the trade group Food Marketing Institute.

In the Tampa Bay area, Florida Progress Corp. estimates Y2K work will cost the utility up to $25-million. Publix is pouring about $12-million into the effort.

The problem has proved more intractable and expensive to overcome than most experts had forecasted. Why? Other electronic equipment besides computers is vulnerable. Microchips that have computer code literally burned into them control factories, power plants, oil platforms, aircraft and traffic lights.

"Technology is a lot more obvious when you see a PC," said Arthur D. Sciarrotta, vice president of information technology at Florida Power Corp., the electric utility subsidiary of Florida Progress. "But the microchip is so pervasive you don't even think about it."

For instance, real estate company Echelon Corp. found that heating, ventilation and air conditioning systems in the NationsBank building in St. Petersburg were not Y2K compliant. It's replacing timers and controls so that the PCs that monitor the systems receive accurate information.

As 2000 spending has accelerated, companies specializing in remediation software and services have prospered. IMRglobal Corp. of Clearwater enjoyed the ride. Nearly half of its revenues since 1996 have come from Y2K repair work.

Calls for preparation

The calls for preparations can be heard even in Congress. Sen. Christopher J. Dodd is trying to persuade people to use "good old Yankee precaution," much as they would for hurricanes, severe snow storms or other weather emergencies. The Democrat from Connecticut serves as vice chairman of the Senate Special Committee on the Year 2000 Technology Problem that has been investigating the effects of the millennium bug on various industries

But as many planning experts are finding, there's a fine line between Paul Revere and Chicken Little. "We think it will be a real disservice for the media or anyone of authority to help create a Y2K panic situation," said Frank Newman, chief executive officer of Eckerd Drugs. "We are fully prepared. But it won't matter if people start to panic and hoard products. If everybody starts buying a month ahead of their needs, it will bring the whole system to its knees."

Despite assurances from industry leaders and regulators, people are nervous about the reliability of their machines. A Gallup poll in December found that more than two-thirds believe Y2K computer problems will last from several weeks to several months.

But the problems may not all surface on Jan. 1. The Gartner Group projects that only 10 percent of computer failures will occur within two weeks of the New Year. Some glitches will crop up as early as July as some companies enter a new fiscal year.

The uncertainty surrounding Y2K has people like Averbeck on edge. She spent $600 on canned food and other supplies at Sam's Club and later bought six 55-gallon drums for $12 apiece to store water.

While Averbeck says she's just a homemaker watching out for her family, even her son thinks she's overreacting. Her neighbors dismissed her suggestion of planting gardens between their yards. "Now I know how Jehovah's Witnesses feel," Averbeck said.

Averbeck is not alone. Eileen McCullough of St. Petersburg ordered a six-month supply of freeze-dried food from a Tennessee catalog house. Her mother bought a year's supply. "It doesn't hurt to be prepared," said McCullough, a 69-year-old retiree. "Besides, the food won't go to waste."

Reports of individual preparations across the country are growing. Grass-roots community groups have even sprung up to minimize risks and head off panic. A local effort known as Tampa Bay Y2K drew only 25 people last month at a meeting to show a two-hour video on how to get ready for disruptions.

Grocery stores, gas stations and banks appear most vulnerable to Y2K stockpiling. But even non-consumer product companies are taking precautions. Among U.S. companies surveyed in November by consulting firm Cap Gemini, 38 percent said they planned to increase inventories of supplies, and 68 percent said they were looking for alternative sources in case their usual suppliers have Y2K problems. Multinational companies fear overseas computer failures, especially in developing countries, could threaten their operations.

All this squirrel-like behavior could mean an uptick in the economy in the second half of 1999. But growth could slow down in the first quarters of 2000 as inventories get used up, said Mark Vitner, an economist with First Union in Charlotte.

Y2K angst is even rippling through the fringes of the economy. At Bill Jackson's outdoors store in Pinellas Park, purchases of wood stoves and cases of freeze-dried food and military-type meals are on the rise, said backpacking manager Dee Schilling. Ron Zepp, owner of A to Z Firearms in Pinellas Park, says, "There's a lot of new buyers coming in."

While several large retailers are reluctant to turn Y2K into a marketing opportunity, some Internet and direct mailers are trying to make a quick buck from millennium preparations. Reliant Interactive Media Corp., a Clearwater company that sells products online and on television, plans to unveil an infomercial featuring a package of two videos and a workbook, "Getting Ready for Y2K." A software programer in Cody, Wyo., started a Web site to review products, such as wood stoves, flashlights and water filters, that could be useful in emergency planning. Creator Mike Adams calls the site the "Consumer Reports of the preparedness industry." Reviews are available to people who buy $199 memberships to the Web site.

The proliferation of Y2K entrepreneurs, though, has government regulators on alert for scam artists playing on consumer fears about computer problems. Last month, the Florida Department of Agriculture and Consumer Services reported a scheme that involves con artists calling consumers and warning that they must move their money into a separate bank account to protect it from millennium bug foul-ups. Another Y2K financial scam involves a supposed agent of Visa International calling to confirm credit-card numbers.

Actual victims of the Y2K bug have turned to the courts. Somewhere between 50 and 80 cases linked to the computer problem have been filed so far, according to estimates. The vast majority focus on whether equipment vendors, such as IBM and AT&T;, are obligated to pay for fixing or replacing hardware and programs that malfunction when they encounter the 2000 date.

These disputes are just the first hints of the high-stakes suits that are expected to come, and that has legislators worried. Laws proposed in Congress and 30 states would limit the ability of consumers to sue over Y2K problems.

Nevertheless, Y2K lawsuits will keep computer law experts busy. Mark Grossman, head of Miami-based Becker and Poliakoff's computer and Internet law department, says he has read reports that the landslide of lawsuits could cost as much as $1-trillion.

Although he doesn't believe the costs will be that high, Grossman says Y2K computer problems will lead to a "a litigation feeding frenzy of unprecedented proportions."

-- Times researcher Caryn Baird contributed to this report.