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 does not have the ability to significantly influence operations and 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.

Maryland State Accident Fund (Fund) - The Fund was established to provide workers' compensation
insurance for participating employers in the State, including the State of Maryland. Legislation was enacted,
effective July 1, 1988, that changed the status of the Fund (which in prior years was included as a
nonexpendable trust fund). The legislation made the Fund independent of all State agencies, and not subject
to any law affecting governmental public entities, with certain exceptions. The commissioners of the Fund
have control of its fiscal affairs. They are selected from employers, employees or other citizens of the State
by the Governor to serve a 5 year term, indicating that the commissioners are not policy making instruments
of any one Governor. The Fund is independent of the authority of any State official. There are no special
financing relationships between the State and the Fund. In its capacity as employer, the State bears the same
relationship to the Fund as any other employer. As a result of these changes, the Fund is autonomous.
Accordingly, effective July 1, 1988, the State Accident Fund is no longer included in the financial reporting
entity.

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 and use 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
on 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.

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