Expenditures for general government increased $51,021,000 or 10.3% over the previous year. This increase
was primarily due to Year 2000 conversion projects and an increase in the amount of state support per homeowner
for the Homeowner's Tax credit program.

Education expenditures increased $186,685,000 or 5.4% due to an increase in educational grants and
additional funds provided to the State's community colleges. Additionally, more money was made available for
scholarships to Maryland's college students.

Business and economic development expenditures increased $4,249,000 or 8.4% over the previous year due to
a planned increase for financial assistance programs for Maryland citizens and businesses.

Health and mental hygiene expenditures increased $356,371,000 or 9.9% over the prior year. This increase
is due primarily to increased expenditures in the medicaid and developmental disabilities programs and
personnel costs.

Expenditures for environment increased $5,791,000 or 8.5% over the previous year primarily for drinking
water initiatives.

Expenditures for public safety and judicial services increased $86,215,000 or 6.4% over the previous year primarily
due to growth in the inmate population. Planned increases in personnel costs within the Division of Corrections,
Parole arid Probation, Juvenile Justice and the State Police has increased staffing and program effectiveness.

Natural resources and recreation expenditures increased $15,638,000 or 11.9% over the previous year. This
increase is primarily due to increased funding for wildlife, land and water conservation programs. Personnel costs
also increased due to cost of living adjustments for State law enforcement personnel.

Expenditures for agriculture increased $6,474,000 or 12.2% over the previous year primarily for agricultural land
preservation. Additional financial support was utilized in implementing the Water Quality Improvement program.

Expenditures for labor, licensing and regulation increased $25,171,000 or 15.9% over the previous year
primarily due to expenditures for regional call centers for Division of Employment and Training.

Operating transfers in to the general fund from capital projects, enterprise funds (State Lottery Agency,
Economic Development - Insurance programs, and Economic Development — Loan Programs) and component
units (Maryland Industrial Development Financing Authority and higher education) totaled $426,443,000.
This represents an increase of 5,942,000 over the previous year. This increase is due primarily to increases in State
Lottery Agency transfers. Operating transfers out from the general fund to capital projects, enterprise funds, and
higher education and proprietary component units totaled $1,209,703,000. This represents an increase of
$196,568,000 over the previous year. This was primarily due to increased funding for loan programs, higher
education and pay-as-you-go capital projects.

The fund balance for the general fund at June 30, 2000, was $2,370,067,000 representing an increase of
$392,102,000 over the previous year's balance. The fund balance for the general fund has shown a pattern of
continuous and substantial increase during the kst seven years.

Management of financial resources is exercised through the legally mandated budgetary system of the State.
The budgetary general fund balance at June 30, 2000, reflected a total fund balance and an undesignated balance
of $1,789,700,000 and $151,760,000, respectively. For information on differences between GAAP and the
budgetary system, see footnote 3 to the general purpose financial statements.

The special revenue unreserved fund balance of $418,314,000 increased $174,557,000 from the preceding
year. This was primarily due to increases in motor vehicle taxes, direct financing leases and bond proceeds. The
debt service unreserved fund balance of $98,550,000 decreased $1,580,000 from the previous year.

CAPITAL PROJECTS FUND

Proceeds of general obligation bond issues are accounted for in the capital projects fund. Completed projects and
uncompleted construction in progress at year end, which are assets of the State, are capitalized in the general fixed assets
account group, the appropriate enterprise fund for self-supporting projects or the component units fund types. During
fiscal year 2000, State projects costing $285,867,000 were completed. State grants for capital projects of local governments
and other public organizations amounted to $297,463,000 in the fiscal year, an increase of $6,218,000 from 1999.

Authorized but unissued general obligation bonds at June 30, 2000, totaled $1,363,620,000.

Introductory Section 25