Debt Management

As a product of Maryland's continuing formal debt affordability review
process, the State reduced its outstanding general obligation debt during the
year. This was accomplished by placing continued reliance upon general fund
revenues as a financing source for capital projects and by postponing bond
offerings.

As a result of preparing its financial statements in conformity with generally
accepted accounting principles and having these statements audited by an
independent firm of certified public accountants, Maryland was able to realiie
interest cost savings on bonds issued during the year that are conservatively
estimated at $600,000. In fact, Maryland's general obligation bonds were sold at
the lowest interest rate of comparable offerings by any state during the fiscal
year. A summary of changes in the debt follows:

_______Millions________

1980 • 1979

Outstanding at beginning of year $2,154.1 $2,173.0

Add Bonds Issued 117.3 115,4

Deduct Bonds Redeemed (162.3) (134.3)

Outstanding at end of year $2,109.1 $2,154.1.

In addition to General Obligation Bonds of Maryland, other long-term
obligations of the State at the end of Fiscal Year 1980 included $560,235,000 of
Transportation Bonds, which are serviced solely from certain transportation
revenues; $484,531,000 of Revenue Bonds, which are serviced solely from cer-
tain enterprise revenues; and $375,227,000 of pension liabilities, which repre-
sent the excess of retirement costs over retirement expenditures and are being
funded on a long-term basis through annual contributions, principally from
general revenue sources.

OUTLOOK

Revenue prospects for Fiscal Year 1981 have allowed the State to provide
new tax relief to income taxpayers by creating an exemption on interest
income. This relief is expected to amount to $11,000,000 in Fiscal Year 1981.
Other tax relief granted in Fiscal Year 1981 is expected to amount to
$3,150,000.

The Federal government eliminated state participation in the Federal
Revenue Sharing program effective September 30, 1980. Loss of revenues
from this source is expected to amount to $34,700,000 in Fiscal Year 1981.

The Transportation Trust Fund, which has historically been served prin-
cipally by the motor fuels tax, has suffered in recent years from reductions in
motor fuel consumption and slow growth in revenues from vehicle registra-
tion. Beginning with the Fiscal Year 1981, this fund will be augmented by the
inclusion of a portion of the motor vehicle titling tax and a portion of the
general fund share of the corporate income tax. Together, these transfers will
add $85,000,000 to Fiscal Year 1981 transportation revenues and will provide
much needed financial support for State and local transportation programs.

New bond authorizations to support the 1981 capital budget amounted to
$212,300,000. Maryland should again achieve favorable interest rates on bond
sales because of its financial disclosure and reporting practices, independent
audit, and its generally strong financial posture.

Although revenues for Fiscal Year 1981 are expected to exceed those of
the prior year, national economic conditions will tend to moderate the rate of
growth from that experienced in previous years. In response to the general
economic conditions and loss of Federal Revenue Sharing funds, Maryland
has pared $50,000,000 from its original spending plans for Fiscal Year 1981.
This action of fiscal responsibility, together with Maryland's diversified
economic base, will enable the State to continue to provide services to its
citizens without impairing its financial condition.

I will be pleased to furnish additional information on the State's finances
upon request. Cordially yours,

Louis L. Coldstein
Comptroller of the
Treasury of Maryland