One of St. Paul's oldest and most famous family-run restaurants is about to triple in size, thanks to a boost from city coffers.

The city's Housing and Redevelopment Authority on Wednesday approved a controversial plan to support a $10 million expansion of Cossetta Italian Market and Pizzeria with $2 million in city loans and other public assistance, as well as a partial exemption from the city's "Living Wage" ordinance.

Under a deal brokered with the city, Dave Cossetta will pay 75 percent of his employees a living wage, instead of all of them. Financial penalties will apply if he fails to abide by the terms of the "forgivable loan" and tax-increment financing agreement.

The deal is expected to create 100 permanent new jobs at the West Seventh Street restaurant. With construction expected to get under way in June, Cossetta's century-old family business will nearly triple in size, adding a wine shop, a rotisserie and a rooftop restaurant and bar.

"We got what we needed to get out of this," said a visibly relieved Dave Thune, city council member and director of the HRA, in an interview afterward. "The development will be nothing short of incredible....One of our jobs is to create jobs, but it's not just to create jobs for computer analysts."

The city's 2011 living-wage standard is $13.98 per hour without health insurance benefits, or $11.82 per hour with the benefits. Cossetta has said most of his employees currently make at least $11.82 an hour and

Cossetta's in St. Paul, April 13, 2011, which plans to expand. (Pioneer Press: Chris Polydoroff)

Among the critics was Bernie Hesse, an organizer with UFCW 1189, which represents 12,000 unionized workers in Minnesota, Wisconsin and North Dakota, many of them in retail, manufacturing and food processing industries.

Council member Melvin Carter played a key role in fine-tuning the agreement, which has been voted on in stages by the council and the HRA. He said the plan will help create, by the year 2015, 100 permanent new jobs in a "soft economy" while establishing "financial disincentives" against failing to reach the 75 percent mark.

"When we voted for the (living wage) waiver, we did that with the very strong commitment that 75 percent of all the jobs be above a living wage," Carter said.

Stark, however, said the penalties for failing to reach the 75 percent mark were not strong enough.

"I'm not going to support the effort," Stark said. "Even if they only hit 50 percent or 45 percent, they'd still get a decent chunk of the money."

The HRA approved a $1.17 million forgivable loan and a $437,000 market-rate loan on April 13. The deal requires Cossetta to meet two conditions as of 2015: that he maintain at least 180 full-time employees, and that 75 percent of them be paid a living wage. If he fails either condition, then half his forgivable loan will be penalized proportionately. If he fails both conditions, the entire loan will be penalized.

In addition, property taxes generated by the expansion and other TIF districts throughout the city are being lent back to Cossetta in advance of construction through tax-increment financing. The package approved Wednesday includes a $388,000 pay-as-you-go TIF loan at an interest rate of 6.5 percent, payable over nine years.

His TIF payments are subject to the same sliding-scale penalties as the forgivable loan. In addition, if Cossetta fails to maintain half his full-time workers at a living wage, the city will forfeit his entire tax-increment financing loan payment for that six-month period.

Cossetta is working with Western Bank on a $6 million real estate loan, in addition to $1.3 million from his restaurant's own cash contributions. The company currently employs 112 to 127 workers.

"He's built this thing from nothing into a dream. I knew him when he was a teenager working for his grandpa," Thune said, adding that negotiating the expansion has been taxing. "Boy, it's been a struggle."

Frederick Melo can be reached at 651-228-2172.