Mercedes changes course on incentive zone tied to premium outlet corridor

Mercedes city leaders are expected to dissolve a tax increment investment zone (TIRZ) by the end of the month — after nearly two decades. 

The decision reflects a broader reset in Mercedes’ economic development strategy, shifting from a broadly drawn reinvestment zone to a more targeted, project-driven incentive model. 

City leaders say dissolving the city’s first TIRZ is meant to clear structural problems and create a cleaner framework for supporting future investment.

Mercedes commissioners voted to eliminate the TIRZ on Feb. 3 and are expected to reaffirm that decision on Feb. 17. 

TIRZ No. 1 encompasses 1,300 acres on both the north and south sides of Expressway 83 in Mercedes, between Mile 3 and Mile 1. That means it includes the Shops at Mercedes development on the west end and the city limits on the east side. 

TIRZ No. 1 was created in 2008 and is slated to expire in 2032. The property in the zone was appraised at $64 million in 2023, up from the base value of $39 million, according to the most recent data available from the Texas Comptroller.

The property tax revenue received was $893,694 in 2023, and the fund balance was negative $504,856. Hidalgo County would owe the city of Mercedes about $200,000 from 2013 to 2022, but the documentation for that reimbursement is missing. 

“I think they did it in a hurry to create the reinvestment zone,” Mercedes Mayor Oscar Montoya Sr. said during a city meeting in December. “There was a litany of things to make this thing fail. It wasn’t just all on the city.” 

City officials said that while the TIRZ No. 1 zone saw some economic growth, its initial structure led to paperwork issues. For example, there’s missing documentation because instead of creating a new account for the TIRZ, the money went into the city’s general fund, assistant city manager Jonas Gonzalez told the Rio Grande Valley Business Journal. 

“Any funds were being put into the general fund, which is not acceptable by county standards. And there was no way we could go back and fix this. The city should have created a separate account,” Gonzalez said. “The best thing to do was start off fresh.”

New developments in TIRZ No. 1 included a new travel center with retail space by Aradi Holdings LLC, led by developer Mohamed Sharaf, which was previously approved for TIRZ reimbursement. 

Instead, Gonzalez encouraged investors interested in properties previously inside the TIRZ along the Expressway 83 to contact the city directly for a potential economic incentive deal tied to a specific project. 

“But now we’ve got procedures in place. Instead of just setting up a TIRZ and hoping somebody comes in, the [new] TIRZ is targeted towards projects now,” Montoya said. “That TIRZ [No. 1] was driven by governance and not by investors. It’s a much better system today.” 

Mercedes Place 1 Commissioner Dr. Jacob C. Howell echoed that sentiment.

“This was before my tenure, but there were a lot of missing pieces. It wasn’t feasible to keep pumping money into something that wasn’t going to work out,” Howell said. 

Instead, he’s looking forward to the city’s future growth with a new TIRZ. 

“Within the next five to 10 years, Mercedes will look different, and it’s going to attract more development,” Howell said. 

In 2025, Mercedes leaders approved the creation of TIRZ No. 2 on the city’s far east side and into its extraterritorial jurisdiction, which bumps up to Weslaco city limits. 

TIRZ No. 2 was inspired by developers Jacinto Garza of San Jacinto Enterprises and Joe Olivarez of Olivarez Organization, who plan to develop 225 acres into subdivisions with 800 new homes. 

After some negotiation with Hidalgo County, city officials expect the county to approve the new TIRZ in the coming weeks. TIRZ No. 2, valued at $3.8 million in 2024, is projected to increase to $583 million by 2054.