A dispute between Atlanta and one of the vendors working on its year 2000 program should not delay the city's remediation efforts, hurt its credit rating, or have a material impact on any upcoming bond deals, city officials and rating agency analysts say.
But while most sources expressed confidence in Atlanta's ability to mend its computer infrastructure by the self-imposed June 30 deadline, some remain concerned over any potential delays in fixing Atlanta's vital information systems.
Last week, Atlanta dismissed Information Systems and Networks Corp., citing delays in its work to identify potential Y2K problems and recommend solutions, according to Herbert McCall, administrative services commissioner for the city.
"ISN was doing our inventory, in addition to verification of the readiness of certain systems," McCall said. "Its not as though we had engaged them to do every single thing related to technology and Y2K."
McCall pointed out that ISN is just one of about a dozen contractors working on different aspects of its Y2K remediation plan.
Another top city official expressed confidence that this contract squabble will not change Atlanta's debt ratings.
"There's nothing regarding ISN that can affect our ratings in any way," said chief financial officer Judith Blackwell. "ISN is not material."
"Certainly, the Y2K issue is material," she added. However, like McCall, she stressed that ISN is far from the only firm the city has hired to battle the millennium bug.
But Norm Singer, vice president and general counsel for Bethesda, Md.- based ISN, called into question whether Atlanta would be able to complete its Y2K fixes, despite the fact there are other companies involved in the process.
"The statement that there will be no delay in doing this project is just ludicrous," Singer asserted. "I don't know how you can make that statement." He said the city would have to start over in order to duplicate the work ISN has done so far, and that would significantly delay part of its compliance program.
Singer said Atlanta's lengthy hiring process and subsequent changes in how much work it wanted the firm to do contributed to the delays. ISN signed a contract in January 1998, but did not hear back from city officials until six months later. At that time, in June, the city asked ISN to oversee all Y2K remediation work and to provide programmers to update its OS-360 mainframe computer. As a result, according to Singer, ISN asked for more money, and the city balked.
McCall declined to discuss the money issue. He said the city initially considered hiring another contractor to replace ISN, but now plans to farm out the work to other companies already involved in its Y2K efforts.
Meanwhile, ISN has laid off 100 staffers it assigned to the Atlanta project. The firm plans to sue the city for breach of contract and could file papers as soon as this Thursday.
The imbroglio came at a busy for the city. Atlanta is currently preparing a number of debt offerings, including a $300 million water-sewer revenue bond sale slated for April that could be enlarged to $800 million. The city also plans a $450 million airport revenue bond issue, scheduled for August.
And as the story broke last week, a number of rating agency analysts were visiting Atlanta to discuss the city's finances and its upcoming deals.
But Blackwell said the timing was actually fortuitous, because it helped "in terms of having open communication - there was no lag time" in talking with the rating agencies about the situation.
She also noted that city officials would be doing an investor tour for its upcoming bond offerings, and that if Y2K issues are raised, "then we'll address them."
Analysts at the rating agencies, while concerned, expressed confidence in the progress Atlanta is making toward solving its potential computer problems and in surmounting its current problem with ISN.
"We understand there are other vendors working with the city on parallel solutions and that there are others that are willing and able to step in and take the place of this particular vendor," said John Incorvaia, vice president with Moody's Investors Service.
Another key concern is whether Atlanta's water and wastewater systems will work properly when the calender ticks over on Jan. 1, according to Josephine Zeppieri, senior director at Fitch IBCA Inc.
"They have a viable plan, and they're working on it," Zeppieri said. She noted that the local United Water Atlanta utility has a new computer system in place that it says is Y2K-compliant. That and other upgrades to the system "give us great comfort" that Atlanta's water will keep flowing into the new millennium, Zeppieri said..
However, the Fitch analyst did wonder whether the utility will be able to collect money from customers - which, despite United Water's computer overhaul, remains an open question.
"One of the key things bondholders worry about is billing," Zeppieri said. "From a bondholder's perspective, if you (as a utility) don't collect your bills, you don't get paid. Nobody gets paid."
She added that even if there are Y2K-related failures associated with the city's water operations, there are some manual safeguards already in place.
Meanwhile, both sides in Atlanta's dispute with ISN have widely different views as to how well the city can cope with any disruption in its Y2K preparations.
McCall named a number of prominent companies involved in fixing different aspects of the city's myriad systems, including computers responsible for such mission-critical operations as the 911 emergency phone system and water and wastewater treatment plants. The firms include Motorola Inc., which is upgrading the citywide radio system, and TRW, which is revamping the 911 system.
But Singer said that since ISN's assessment work hasn't been done, the remediation task it was hired to perform cannot be completed. "You can't do the remediation until you do an assessment," he said. He estimates the city will miss the June 30 deadline by three to six months
Singer also pointed out that Atlanta's Hartsfield International Airport, another issuer of tax-exempt bonds, still has a contract with ISN to perform its Y2K work. He said the airport has had concerns, which ISN has addressed.
Although the rating agencies are watching municipalities for snags in their Y2K progress, any downgrades would most likely happen later in the year, as the new millennium looms.
"I don't seen any downgrading before the last quarter of this year," said Hy Grossman, managing director at Standard & Poor's, speaking in general of Atlanta and cities like it.
"If at that point in time the situation is quite clear they'll have problems into the first quarter of 2000, there may be rating consequences. But it's too early to make a definitive statement," he said.
