3. Budgeting and Budgetary Control:

The Maryland Constitution requires the Governor to submit to the General Assembly an annual balanced
budget for the following fiscal year. This budget is prepared and adopted for the following five budgetary funds.

General Fund:

The General Fund includes all transactions of the State, unless otherwise directed to be included in another
fund.

Special Fund:

The Special Fund includes the transportation activities of the State, fishery and wildlife funds, shared taxes
and payments of debt service on general obligation bonds. In contrast, the GAAP special revenue funds include only
the operations (other than debt service and pension activities) of the Maryland Department of Transportation and
Maryland Transportation Authority.

Federal Fund:

The Federal Fund accounts for substantially all grants from the Federal government.

Higher Education Fund:

The Higher Education Fund includes the Current Unrestricted Fund which accounts for unrestricted revenue
used or available for use in carrying out the current operations and the Current Restricted Fund of the State's colleges
and universities which accounts for restricted gifts, grants and other restricted resources.

Budgetary Fund Equities and Other Accounts:

In addition to the annual budget, the General Assembly adopts authorizations for the issuance of general
obligation bonds. The expenditures of the resources obtained thereby are accounted for in the capital projects fund.
Because capital projects fund authorizations are not part of the annual budget, capital projects fund activities are
not presented in the Combined Statement of Revenues, Expenditures and Encumbrances, Other Sources and Uses
of Financial Resources, and Changes in Fund Balances—Budget and Actual—for the year ended June 30, 1999.

All State budgetary expenditures for the general, special, federal, current unrestricted and current restricted
funds are made pursuant to appropriations in the annual budget, as amended from time to time, by budget
amendments. State governmental departments and independent agencies may, with the Governor's approval, amend
the appropriations by major function within the budgetary general fund, provided they do not exceed their total
general fund appropriations as contained within the annual budget. Increases in the total general fund appropriations
must be approved by the General Assembly. For the fiscal year ended June 30,1999, the General Assembly approved
a net increase in General Fund appropriations of $67,956,000. Appropriations for programs funded in whole or in
part from the special, federal, current unrestricted or current restricted funds may permit expenditures in excess
of original special, federal, current unrestricted or current restricted funds appropriations to the extent that actual
revenues exceed original budget estimates and such additional expenditures are approved by the Governor or, in
the case of the University System of Maryland, the Board of Public Works. Unexpended appropriations from the
general fund may be carried over to succeeding years to the extent encumbrances are approved by the Department
of Budget and Management, with all other appropriations lapsing as of the end of the fiscal year. Unexpended
appropriations from special, federal, current unrestricted and current restricted funds may be carried over to the
extent of (a) available resources, and (b) encumbrances approved by the Department of Budget and Management.

The amended budget adopted by the General Assembly for the general, special and federal funds is presented
in the Combined Statement of Revenues, Expenditures and Encumbrances, Other Sources and Uses of Financial
Resources, and Changes in Fund Balances—Budget and Actual—for the year ended June 30, 1999. The State's
budgetary fund structure and the basis of accounting used for budgetary purposes, which is the modified accrual
basis with certain exceptions, differs from that utilized to present financial statements in conformity with generally
accepted accounting principles. The budgetary system's principal departures from the modified accrual basis are
the classification of the State's budgetary funds and the timing of recognition of certain revenues and expenditures.

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