tunnel across the Patapsco River. The agreement is contingent upon the ability of the Authority to obtain the
requisite financing. The Authority expects to recover their debt service and other costs through future net toll
revenues of the tunnel. Tunnel construction began in 1980 and is expected to be completed in 1985.

At June 30,1983, the Maryland State Lottery had commitments of approximately $33,000,000 for services
to be rendered relating principally to the operation of the lottery games.

At June 30, 1983, Maryland Environmental Service had commitments of approximately $8,300,000 for
construction of projects.

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, 1983, anticipated workers' compensation claims in the amount of
$34,000,000 applicable to State employees were accrued in nonexpendable trust fund. For the year ended June
30, 1983 the State paid the State Accident Fund approximately $9,800,000 in premiums.

The Board of Trustees of the State Universities and Colleges entered into a commitment for the leasing of
certain student facilities on the campus of Towson State University. Annual payments are approximately
$3,900,000 for a period of 30 years. These payments will be made by Towson State University through the
collection of student fees.

13. 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, 1983, 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 $309,067,000 (including $195,667,000 for the economic development loan
programs). In addition, there are commitments to insure mortgage loans which would represent additional
contingent liabilities of approximately $32,097,000.

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 30,1983 the Corporation had endorsed loans of approximately $467,000,000. 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. Since entering into the reinsurance agreement, the Corporation has
qualified for 100% reinsurance, except 1982 (90%) and 1983 (80%). Management expects the 80 or 90 percent
rates to continue through 1984.

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, 1983, the State estimates that no
material liabilities will result from such audits.

14. Retirement and Pension Systems:

As of June 30, 1983 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.

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