To be fair to the time, in 1999, there was the dot-com bubble going on and a lot of students were going into CS for the wrong reasons so there could have been more at play than government objectives. I suspect there were a lot of CS students who did not enjoy programming in such programs, thus accounting for seniors who couldn't do projects. I know CS and programming are not the same, but I liken it to studying Shakespeare and not enjoying reading or writing.
Our school (UWaterloo) noticed a huge drop in CS enrollment soon after that, between 2002 and 2004 (roughly). At which point business programs saw a spike in enrollment. I wonder if this professor had stuck around whether he would have noticed an improvement once the stories of 24 year old billionaires were removed from the headlines.