The following are excluded from the reporting entity:

Maryland Health and Higher Education Facilities Authority - The fiscal operations and management are
outside of the State system, the State has no legal liability for deficits or loan defaults, and the governing board
selects management staff.

Maryland Automobile Insurance Fund - The governing board members are selected equally by the governor
and the insurance industry. The board then selects a chairperson. The fund operates and is managed similar to
companies in the insurance industry.

There are various other entities which are non-state agencies that have been excluded from the reporting
entity. These entities, which include the Maryland School for the Blind, Blind Industries and Services of
Maryland, Maryland National Capital Park and Planning Commission, State Employees Credit Union and the
Maryland Credit Union Insurance Corporation, are governed and controlled by their boards, members or by-
laws. The scope of public service is limited in many cases and there are no special financial relationships with
the State.

B. Fund Accounting:

The State uses funds and account groups to report on its financial position and the results of its operations.
Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating
transactions related to certain functions or activities. A fund is a separate accounting entity with a self-balancing
set of accounts which represent the fund's assets, liabilities, equity, revenues and expenditures or expenses.
Funds are classified into three categories: governmental, proprietary and fiduciary. Each category is then
divided into separate "fund types".

GOVERNMENTAL FUND TYPES

Transactions related to the acquisition, use, and balances of the government's expendable financial resources
received and used for those services traditionally provided by a state government, which are not accounted for
in other funds, are accounted for in governmental funds. The governmental fund measurement focus is upon
determination of financial position (sources, uses, and balances of financial resources), rather than on net income
determination. Governmental funds include:

General Fund:

Transactions related to resources obtained and used for those services traditionally provided by a state
government, which are not accounted for in other funds, are accounted for in the general fund. The services
include, among other things, general government, public safety and judicial, health and mental hygiene, human
resources, licensing and regulation, and education (other than higher education institutions). Resources obtained
from federal grants and used for activities accounted for in the general fund consistent with applicable legal
requirements are recorded in the general fund.

Special Revenue Fund:

Transactions related to resources obtained, the uses of which are restricted to specific purposes, are
accounted for in the special revenue fund. The special revenue fund includes resources used for operations (other
than debt service) of the Maryland Department of Transportation Trust Fund, including construction or
improvement of transportation facilities and mass transit operations.

Debt Service Fund:

Transactions related to resources obtained and used for the payment of interest and principal on general
long-term debt obligations and transportation debt (other than Maryland Transportation Authority revenue
bonds) are accounted for in debt service funds.

Capital Projects Fund:

Transactions related to resources obtained and used for the acquisition, construction or improvement of
certain capital facilities, including those provided to political subdivisions and other public organizations are
accounted for in the capital projects fund. Such resources are derived principally from proceeds of general
obligation bond issues, federal grants and operating transfers from the State's general fund.

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