General Long-Term Debt Account Group:

General obligation, transportation and Maryland Transportation Authority bonds payable, capital lease
obligations, accrued self-insurance costs and accrued annual leave related to general governmental activities are
reflected in the general long-term debt account group.

2. Summary of Significant Accounting Policies:

A. All Funds:
Retirement Costs:

Substantially all State employees participate in one of several State retirement systems. (See Note 15.) The
State also provides retirement benefits to teachers and certain other employees of its political subdivisions.
Retirement expenditures for governmental fund types represent amounts contributed by the State for the fiscal
year. Retirement costs have been provided on the accrual basis, based upon actuarial valuations.

Accrued Self-Insurance Costs:

The accrued self-insurance costs represent the State's liability for its various self-insurance programs. The
State is self-insured for general liability, property and casualty, workers' compensation, environmental and anti-
trust liabilities and certain employee health benefits. The State records self-insurance expenses in the proprietary
and discretely presented component unit fund types on an accrual basis and the modified accrual basis for the
governmental fund types. The long-term accrued self-insurance costs of the governmental fund types which are not
expected to be funded with current resources are reported in the general long-term debt account group.

Annual Leave Costs:

Principally all full-time employees accrue annual leave based on the number of years employed up to a
maximum of 25 days per calendar year. Earned annual leave may be accumulated up to a maximum of 45 days as of
the end of each calendar year. Accumulated earned but unused annual leave for general government employees is
accounted for in the general long-term debt account group. Liabilities for accumulated earned but unused annual
leave applicable to enterprise funds and the proprietary and higher education component units are reported in the
respective funds.

"Total Memorandum Only" Columns:

The "Total Memorandum Only" columns represent an aggregation of the individual combined financial
statements for the primary government and the reporting entity, and do not represent consolidated financial
information.

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.

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

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