including government—wide financial statements, fund financial statements and notes to the financial statements,
and required supplementary information. The State is in the process of assessing the impact of this Statement and
will implement it as of the effective date for fiscal periods beginning after June 15, 2001.

B. Governmental Fund Types, Expendable Trust and Agency Funds:
Basis of Accounting:

The accounts of the general, special revenue, debt service, capital projects, expendable trust and agency funds
are maintained and reported using the modified accrual basis of accounting. Under the modified accrual basis of
accounting, revenues susceptible to accrual are recognized in the financial statements when they are both measurable
and available to finance operations during the fiscal year or liquidate liabilities existing at the end of the fiscal year.
Material revenues susceptible to accrual include: federal grants, personal income taxes, sales and use taxes, and
motor vehicle fuel and excise taxes. Expenditures are recognized when obligations are incurred as a result of receipt
of goods and services. Encumbrances represented by executed and unperformed purchase orders and contracts,
which are approved by the Department of Budget and Management, are recorded as reservations of fund balance
as of the end of the fiscal year. Modifications to the accrual basis of accounting to reflect the modified accrual basis
include the following:

• Interest on long-term obligations reflected in the general long-term debt account group is recognized in the
debt service fund when it becomes payable.

• Inventories of materials and supplies are recorded as expenditures when purchased. Such inventories are
not material.

• Expenditures for retirement costs, and employees' vested annual leave and sick leave are recorded as
expenditures when paid.

Grants:

Revenues from federal reimbursement type grants are recognized when the related expenditures are incurred.
Distributions of food stamp benefits are recognized as revenues and expenditures when the benefits are distributed
to individual recipients.

Income Taxes:

The State accrues the net income tax receivable or records a deferred revenue based on estimated income tax
revenues and refunds due relating to the fiscal year, that will not be collected or paid until after the fiscal year end.
This accrual is computed based on projected calendar year net tax collections, tax laws in effect, future projections and
historical experience.

Sales and Use Taxes:

The State accrues June sales taxes that are unremitted at year end as a receivable. These taxes are considered
measurable and available since they represent June collections that are remitted to the State in July by merchants
who collect the related sales tax.

Property Taxes:

The State levies an annual tax for the fiscal year beginning July 1 and ending June 30 on all real and personal
property subject to taxation, due and payable each July 1 (lien date), based on assessed values as of the previous
January 1, established by the State Department of Assessments and Taxation at various rates of estimated market
value. Each of the counties, Baltimore City and incorporated municipalities establish rates and levy their own tax
on such assessed values. The State tax rate since 1982 has been maintained at 210 per $100 of assessed value.
Unpaid property taxes are considered in arrears on October 1, and penalty and interest of 1% is assessed for each
month or fraction of a month that the taxes remain unpaid. Current collections are 98.7% of the total tax levy for
the fiscal year. Property taxes are accrued to the extent they are collected within 60 days of year end.

Escheat Property:

Escheat property is property that reverts to the State's general fund in the absence of legal claimants or heirs.
The escheat activity is reported in the general fund and a liability is recognized for the estimated amount that
ultimately will be reclaimed and paid.

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