We have begun our second term of office as PEF Trustees. The last three years have been a roller coaster ride of ups and downs, rewards and disappointments. We are finally in the year 2000. So much has been said about the millennium and what it will mean to us to live during this time. We have witnessed some pretty amazing things in our own Union. We have seen our members get angry, march and mobilize as never before. We have rallied from NYC to Albany to Buffalo to Detroit, Michigan. Nothing was more impressive than the 20,000 PEF and CSEA members in a sea of red, white, blue and gold braving the cold to march in solidarity in protest of the heavy handed tactics of a Governor intent on keeping them from getting a fair contract. For 18 months of a bitter contract fight our members gave our Union the power it needed to continue to the end. We wrote and called the Governor and our Legislators. We wore the PEF hats and t-shirts proudly and shouted the chants loudly. Whatever we needed the Union gave us; whatever needed to be done we did it. We felt good about ourselves knowing and seeing what we could accomplish if we came together. Our actions and involvement during this time are to be commended. But this was just the beginning. Only through our continued involvement will we be able to build on that momentum and achieve that which we still need to do.

Sadly, this celebration was quickly tempered by the tragic loss of our Vice President Jean DeBow. Jean embodied the true spirit of unionism. Her union roots were long and deep. As a child her mother would bring her to union meetings. Jean learned early of the value of people uniting for a common cause and she never forgot it. Her life has been a testament to helping others. She was a voice for those who had none and she was a force to be reckoned with. Those of us who knew her were fortunate to have her counsel and friendship. She will be missed.

Audit Report
The Trustees are Constitutionally charged to periodically review PEF's financial records; report to the membership any activities not in their best interest and to attend Executive Board meetings. We periodically meet and review, at random, Division audits and have met with Regional Coordinators to review their financial records. The Trustees work closely with the Secretary-Treasurer to review those Divisions not in compliance with acceptable PEF financial policies. At the time of this report, there continue to be several Divisions that have not reconciled their practices to PEF policies.

On August 11, 2000, a meeting was held with Secretary-Treasurer Jane Hallum, Tom Curley, Director of Finance, Valerie O’Dell, Staff Accountant, the Trustees and Frank Venezia and Bob Gramuglia, of Marvin and Company. Frank Venezia and Bob Gramuglia presented an overview of the PEF 1999-2000 audit and their findings. The audit included examination of documentation that supported the amounts and disclosures in the PEF consolidated financial statements. The audit also assessed the accounting principles used and estimates made by management, as well as evaluating the overall financial statements.

Marvin and Company reported that PEF's financial position for fiscal year 1999-2000 ended in conformity with generally accepted accounting procedures. They further stated that all financial statements supported their opinions and fairly represented PEF's financial position. The financial statements received include the accounts of PEF and its subsidiary, PEF Land Holding Corporation. PEF Land Holding Corporation is a not-for-profit corporation formed to hold title to the land and office building used to house PEF's Headquarters. The accounts of PEF include a general fund, a political action fund, a Committee on Political Education (COPE) fund and a plant fund.

Fiscal 1999-2000
1. Listed below are the expenses for the 5 Statewide Officers and Trustees:
Expenses FY 99-00

2. PEF's expenses by functional activity:

Due to our protracted contract negotiations and the absence of contract monies during the past fiscal year, the Grant and Contract Activity line shows a marked decrease from the previous fiscal year.

3. Temporarily Restricted Net Assets
Those assets as of 3/31/00 that are to be used for a specific purpose only:

COPE
(Voluntary Political Contributions) $ 75,798.00
Negus Trust (Education) 11,769.00
TOTAL $ 87,567.00

Recommendations

1. Payroll
Finding: The audit disclosed one (1) instance where there was no written authorization of an employee's pay increase in their file.
Recommendation: The Secretary-Treasurer and the Human Resource Director should authorize, in writing, the salaries and raises given to employees. At our meeting, Secretary-Treasurer Jane Hallum assured us this recommendation is current PEF practice and that this was an oversight that would be corrected.

2. Accounting Procedures Manual
Finding: PEF has not yet developed a complete and formal accounting policies and procedures manual.

Recommendation: All informal procedures should be documented and compiled into a formal manual that all employees may reference to insure consistency and accuracy in PEF's financial office. The Secretary-Treasurer should review and approve these procedures. This is currently being worked on in the Finance Office.

3. Fixed Assets Inventory
Finding: The audit disclosed that PEF has not performed a physical inventory of fixed assets nor has a reconciliation of such assets to the general ledger been done.

Recommendation: We found that the Director of Finance is responsible to perform this task at PEF's main office and that it is the responsibility of the Field Directors to do the inventory for the regions. We recognize that this is a huge undertaking but it is important and should be phased in and completed within a reasonable period of time. After completion, PEF's insurance coverage should be checked to determine if our coverage is adequate. This, too, is being worked on.

4. Concentration of Credit Risk
Finding: As of 3/31/00 PEF had cash deposited in excess of federally insured limits. The amount subject to credit risk is $1, 673, 000.00.

Recommendation: Last year a discussion ensued regarding our banking with the Amalgamated Bank of NY. Meetings were held during fiscal year '99-00 between Amalgamated and the PEF Secretary-Treasurer to see if PEF could receive interest on monies held by Amalgamated. Amalgamated was unwilling to accommodate PEF. Secretary-Treasurer Jane Hallum will look into bidding out our needs to various banks in an effort to get the most for our money.

Updates: The audit disclosed that two problems from last year have been resolved. They were bank conciliations not being checked by a second party and the PEF payroll not being approved prior to processing.

Investments

PEF invests in US Treasury Notes and Bills that have an average return rate of 4.75% - 7.25%; US Treasury Zero Coupon Bonds that have an average return rate of 4.81 %; and GNMA Pass-Thru Securities that average 6.50% - 7.50%. Cash equivalents consist of investments in certificates of deposit with original maturities of three months or less. Investment securities are measured at fair value. As our investments mature they are sold and reinvested.

Our investment firm is Stacy Braun Associates, Inc. Since October 1992, our assets have increased in value by $1,120,793 giving PEF a total market value of $4, 335,073 and a fair market value of $3,825,354 as of March 31, 2000. Our total return on investment for fiscal year 1999-2000 was $94, 220. This is an overall increase of 55.5% and continues to out perform Merrill Lynch by 2.2% during this same timeframe.

PEF has a responsibility to its members to be fiscally responsible and still provide our members with a strong and supportive Union. With the average age of our members being around 50, this is even more important as we will see a large segment of the State workforce, our members, age and retire. For this reason, PEF continues to follow a conservative approach when investing our money. While the return on investment may not be as high as that which might be gained from a more aggressive stock portfolio, the Trustees agree that the risks associated with our current investments are minimal, our growth rate competitive and our money safer.

Contract

Following is a breakdown of PEF monies spent for contract negotiations since fiscal year 1998-1999 to present. This includes all expenses associated with the costs of the contract team as well as the costs of our fight back activities.

The professional fees and consultation costs above reflect the amounts paid to Irwin Bluestein and his firm, Vladeck. They break down as follows:

From 1998 to present, PEF has expended a total of $432,514.84 on our contract fight/negotiations. Of that amount, $166,520.53 was paid to our professional negotiator, Irwin Bluestein and his law firm. At the time our report was submitted, PEF had not received its bill for services from the American Arbitration Association. We expect that to be approximately $100,000.00 giving a grand total of approximately $532,514.84 of PEF monies expended in contract expenses.

In addition to the PEF monies, we received $250,000 from SEIU, $113,500 from AFT and $125,000 from NYSUT. All of these monies were used for our media campaign. We also received in kind services from all of these Unions as well as the services of a full time contract negotiator, Joe Buckley, from SEIU for approximately one year.

Income Taxes
PEF as a labor union is exempt from Federal income taxes under Section (c )(5) of the Internal Revenue Code. However, under Section 527 of this same code, PEF's investment income from COPE is subject to tax. PEF Land Holding Corporation is a title-holding corporation and is also exempt from Federal income taxes.

Funds
PEF maintains a Political Action Fund and a PEF employee Pension Fund.

The Political Action Fund is administered by the PEF Legislative Department. It is used for political contributions approved by the Executive Board and operations of the Legislative Department. For fiscal year 1999-2000, $987,189.00 was allocated for its operations and political contributions.

The Pension Fund is a defined multi-employer pension plan for PEF employees. For fiscal year 1999-2000, pension expense was approximately $796,000.00. This amount is based on the contribution rate of 14% of total eligible employee compensation. During FY '98-99, SEIU conducted an audit of this pension fund and found that PEF owed $7000 more for 1998 and a total of $141,000 for prior periods. PEF had been calculating this benefit only for its permanent employees. The SEIU audit pointed out that PEF must calculate this benefit for any employee earning $4000 or more in salary. SEIU has been paid all outstanding balances including the $141,000. Discussions continue with SEIU in an attempt to receive a refund on these monies.

Membership
PEF has a membership totaling 53,437. Of that 49,227 are members and 4,210 are fee payers. PEF revenue is comprised of dues paid by PEF members and agency shop fee payers. Dues income is collected in the pay period for which New York State pays members' salaries. PEF's revenue from dues paid by members and fee payers for fiscal year 1999-2000 was $19,787,850.00. Of that amount, $765,049.00 was distributed to local Divisions in per caps.

Union Affiliations
PEF is a dues paying member of both the American Federation of Teachers (AFT) and the Services Employees International Union (SEIU). We have approximately a 50/50 split of our membership into each affiliate. For fiscal year 1999-2000, PEF paid a total of $5,142,998.00 in dues to AFT and SEIU. Both AFT and SEIU raised their dues structure again at their annual conventions this year. For SEIU our current per caps is $6.80 per member for this calendar year. This will increase by approximately $1.15 per member each year over the next four years to $12.65 per member by the year 2005. For AFT our current per caps is $10.25 per member. This will increase on 9/1/00 to $10.60 per member and to $10.95 per member on 9/1/01.

Liability
Under an arbitration award rendered in May 1985, PEF was ordered to pay New York State United Teachers/American Federation of Teachers in excess of $9 million in 1 0 back per capita dues for the period March 1984 thru March 1985. In 1988 a State Supreme Court decision vacated the award in its entirety. AFT appealed the decision. In May 1989, the Appellate Division reversed the lower court decision and awarded AFT approximately $9.2 million in back per capita taxes. In 1989, PEF appealed the decision of the Appellate Division and on March 27,1990, the Court of Appeals denied PEF's motion and reaffirmed the $9.2 million judgment to AFT. During fiscal year ending March 31,1991, the State Supreme Court granted AFT's motion to the Supreme Court to be awarded prejudgment date interest. In June,1991, the State Supreme Court granted AFT's motion for prejudgment date interest. Interest on the outstanding balance accrues at the rate of 9% annually. On March 31, 2000, PEF's debt amounted to approximately $8,959,366.39. PEF anticipates paying off this judgment in about 8 years.

This outstanding AFT debt is the only liability that threatens PEF's solvency at this time. The AFT continues to 'forgive' a percentage of our debt and the interest for the current year. For the calendar year ending December 31, 1999, $856,418.01 in interest was forgiven and $792,979.64 in principal was forgiven. The reduction equals one twentieth of the original amount owed plus interest accrued for calendar year 1999. Since 1991, the AFT has unilaterally reduced PEF's debt by a total of $15,986,467.00. We hope to see this arrangement continue.

Divisions
PEF has about 225 Divisions. Division per caps is increased at the same rate of our salary increases. Each Division is paid $5.175 per member up to 200 members and $4.14 for each member in excess of 200.

Divisions are required to submit, on a timely basis, quarterly expenditure reports and a year-end fiscal audit to PEF. Failure to do so will result in forfeiture of Divisions per cap allotment(s). Repeated failure to submit these reports will result in the Division's account being closed down and put into receivership. Last year, 5 Divisions were closed for failing to submit audit information for 2-3 years. This year another 5 Divisions will be closed down.

We have met with Secretary-Treasurer Jane Hallum to discuss various Divisions repeated lack of adherence to PEF fiscal policies. The Trustees sent a letter to the Executive Board, Council Leaders and Stewards reiterating what are acceptable fiscal practices and policies. One or two problems still remain but we are confident that they will be resolved in a satisfactory manner.

We invite any Divisions in need of assistance to contact Ingrid Young of Divisions Finance, Secretary-Treasurer Jane Hallum or the Trustees. There is also training available that is very helpful and instructive.

Regions
PEF has twelve (12) regions spread out across New York State. Each has a Regional Coordinator elected by the constituents of that particular region. Regional Coordinators are constitutionally charged to hold general membership meetings; to insure that members have information and representation; and to submit a yearly budget to the Secretary-Treasurer for approval. They are constitutionally charged to share this same budget with the Stewards in their region.

We again recommend that Regional Coordinators come up with a plan to disseminate this information to the Council Leaders in their region.

Education and Training
PEF's Education and Training Office helps formulate and administer our Article 15 training programs for our members in cooperation with the Governor's Office of Employee Relations (GOER) as well as maintaining in-house programs. Due to our lack of a contract, Education & Training had as its main focus member mobilization and formulating Advanced Steward Training program. We have listed the Article 15 programs that are funded by PEF contract monies only.

1. Work Force Initiative Program
This program supports services that are not provided for in other training programs. Agencies can tailor a specific program or labor management training to fit their needs

2. Public Service Training Program (PSTP
This program provides tuition reimbursement to our members. Under PSTP, PEF members can receive up to $600 per semester for classes attended at participating colleges with a maximum of $1200 per fiscal year. The program has made available over $10 million for tuition payments. During fiscal year 1999, PEF received $1,019,758.00 for tuition and reimbursed members $2,024,915.00. Under this agreement PEF was reimbursed $230,963.00 for administrative expenses for fiscal year ended 3/31199. As of 3131/99, the PSTP program was no longer administered by PEF.

3. Public Service Workshops Program (PSWP)
Provides non-credit workshops on current topics and issues of interest to our members. This forum has been used to provide our members with courses necessary to meet their continuing education requirements to maintain their employment.

Transition
Last year we reported on the PEF initiated lawsuit to recover monies paid to the State of New York to purchase sick leave credits for former PEF President Sheedy and other officers. We are happy to report that an agreement has been reached and that this issue is now resolved. Under the terms of the agreement, PEF will receive $7500 and the former Officers relinquish claim to disputed sick leave credits.

The Executive Board passed the proposed Special Rule of Order on Transition setting a structured policy in place when there is a change in elected Officers.

1999 Convention Resolutions
Last year our convention was filled with many speakers and guests, award presentations, and a rally around our contract. As a result no resolutions were brought before the delegates for voting. We can report that Resolutions 11 (COLA) and 12 (Tier Equity) from 1998 were passed by the Legislature and signed into law by the Governor.

We again recommend speakers and guests, etc. be kept to a minimum so that more time may be spent on dealing with convention resolutions and training of importance to our delegates.

Respectfully submitted,

Arlea Igoe, Bob Reynolds, Glendore Ulerie

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