The State is insured for workers' compensation losses by the State Accident Fund under a contract which
provides for the State to pay premiums based upon loss experience plus a proportionate share of administrative
costs. In the event of termination of the contract, the State is obligated for any premium deficiency existing at
the time of termination. As of June 30, 1982, anticipated workers' compensation claims in the amount of
$23,000,000 applicable to State employees were accrued in nonexpendable trust fund.

The Board of Trustees of the State Universities and Colleges has entered into a commitment for the
leasing of certain student facilities to be constructed during fiscal year 1983 on the campus of Towson State
University at an estimated cost of approximately $29,000,000. Annual payments are anticipated to be
approximately $3,800,000 for a period of 30 years.

14. Contingencies:

The State is party to legal proceedings, which normally recur in governmental operations. The legal
proceedings are not, in the opinion of the Attorney General, likely to have a material adverse impact on the
financial position of the affected funds.

As of June 30, 1982, mortgage loan insurance programs included in the enterprise funds were
contingently liable as insurer of mortgage loans payable, or portions of mortgage loans payable, in an
aggregate amount of approximately $69,000,000.

In August 1981, the Maryland Transportation Authority (Authority) entered into an agreement with the
City of Baltimore to finance the non-federal share (approximately $90,000,000) of costs associated with the
construction of a tunnel across the Patapsco River. The Authority expects to recover their costs through future
net toll revenues of the tunnel. Tunnel construction began in 1980 and is expected to be completed in 1985. The
agreement is contingent upon the ability of the Authority to obtain the requisite financing.

The Maryland Higher Education Loan Corporation (Corporation), as endorser of student loans, is
contingently liable to lending institutions for the purchase of student loans in default. In the event of such
default, the Corporation is liable to the lending institution for the unpaid principal amount of the loan plus
unpaid interest, including interest accrued from the date of default until the date of purchase by the
Corporation. At June 30,1982 the Corporation had endorsed loans of approximately $305,000,000. These loans
are covered by a Federal reinsurance agreement with the U.S. Department of Education. The agreement
provides for the U.S. Department of Education to repurchase defaulted loans purchased by the Corporation at a
rate based on past default performance (100% through March, 1982 and 90% thereafter).

The State receives significant financial assistance from the U. S. Government. Entitlement to the
resources is generally conditioned upon compliance with terms and conditions of the grant agreements and
applicable Federal regulations, including the expenditure of the resources for eligible purposes. Substantially
all grants are subject to financial and compliance audits by the grantors. Any disallowances as a result of these
audits become a liability of the fund which receives the grant. As of June 30, 1982, the State estimates that no
material liabilities will result from such audits.

15. Retirement and Pension Systems:

As of June 30, 1982 the State of Maryland had employee retirement and pension programs as follows:

"Retirement Systems"—for employees, teachers and State police—retirement programs for substantially
all State employees, teachers and State police who are not members of the State Pension Systems.

"Pension Systems"—for employees and teachers—retirement programs for employees and teachers hired
after January 1, 1980 and prior employees who have elected to transfer from the Retirement Systems.

"Judges' Pension System"—a retirement program for State judges.

"Mass Transit Administration Pension Plan"—a retirement program for certain employees of the Mass
Transit Administration.

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