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Glenn Hegar  ·  Texas Comptroller of Public Accounts

Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Notes & Samples

NOTE 27 – Service Concession Arrangements
Sample (Illustrative, may not tie to exhibits)

Sample Agency has seven arrangements that fit the criteria of a service concession arrangement (SCA).

Sample Agency may enter into SCA’s with both public and private operators. Fees the operator collects are in the form of tolls. At the end of these arrangements, operations and maintenance of the projects will transfer to Sample Agency and the state of Texas retains ownership rights and title to all assets associated with the SCA.

SCA projects were entered into for the purpose of:

  • Improving mobility by expanding existing road capacity and introducing managed toll lanes, traditional toll lanes and other strategies aimed at reducing traffic congestion.
  • Enabling Sample Agency to deliver these projects faster than would be possible using traditional funding sources.
  • Shifting the majority of the financial risk to the operator.

A general description of each SCA, including status, term and duration, is presented in the following table:

Service Concession Arrangements
Aug. 31, 20CY

Arrangement Name Construction Status Term of
IH Managed Lanes Complete 46 years 2010 2055
State Highway Complete 50 years 2012 2062
State Highway Concession Under Construction 50 years 2009 2059
Expressway Segment Under Construction 52 years 2009 2061

The structure of each SCA is different due to the unique financial aspects of each arrangement. In all cases, Sample Agency receives a benefit due to their retention of ownership of the project at the end of the concession term.

In the year a SCA project opens for traffic, Sample Agency records the capital assets acquired under the SCA at their acquisition value with a corresponding entry to deferred inflows of resources. The deferred inflows of resources balance is then reduced and revenue is recognized in a systematic manner over the term of the arrangement, beginning when the infrastructure assets are placed into operation. Up-front concession payments received are recorded as assets (cash and cash equivalents) with an offset to deferred inflows of resources on the government-wide financial statements. Revenue is recognized and the deferred inflows of resources are reduced in a systematic and rational manner over the term of the arrangement. SCA amounts reported as of Aug. 31, 20CY, are presented in the table below:

Service Concession Arrangements
Amounts Recognized in Financial Statements
Governmental Activities
Aug. 31, 20CY

Arrangement Name Cash and Cash
Capital Assets Deferred Inflows
of Resources**

*The cash and cash equivalents balance is the amount of unspent up-front concession payments.

**The deferred inflows of resources balance represents unamortized up-front payments and capital improvements Sample Agency received under these four SCAs.

IH Managed Lanes $                       $                       $    222,826,000
State Highway 119,248,125 1,444,038,222 1,467,996,568
State Highway Concession 1,611,185,998 1,322,027,627 3,411,487,156
Expressway Segment   658,919,012 38,771,068
  Total $ 1,730,434,123 $ 3,424,984,861 $ 5,141,080,792

In some cases, Sample Agency is obligated to make contributions of public funds to the SCA project during the construction period for portions of the project’s design, construction or right-of-way costs. Outlays of Sample Agency funds related to SCA projects are recorded as additions to construction in progress as they are incurred.

The Sample Corporation is a blended component unit of Sample Agency. Sample Corporation and Sample Agency entered into an arrangement that fits the criteria of a SCA. Sample Corporation is responsible for the design, construction, financing and operation of segments Y and Z of State Highway X for a period until the bonds or other debt secured is fully repaid. Sample Corporation is entitled to all toll revenues during the operations period. At the end of the arrangement, operation of the roadway is transferred to Sample Agency.

The objective of this arrangement is to deliver this project in partnership with Sample Agency more quickly than would be possible under a traditional structure.

Sample Corporation has recognized an intangible asset in the amount of $1 billion for its costs of design, construction and right-of-way acquisition for the year ended Aug. 31, 20CY. This amount is reported in business-type activities.

Glenn Hegar
Texas Comptroller of Public Accounts
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