With a booming economy propelling L.A. out of the red for the first time in nearly a decade, it would seem like an ideal time for the city to make down payments on the huge pent-up demand for additional services.

But it’s becoming increasingly clear that L.A. will be forced to pass up this opportunity thanks to the LAPD Rampart corruption scandal.

Even as Mayor Richard Riordan and the City Council have squared off over how to pay the expected millions of dollars in liability settlements, there is widespread agreement that expanding existing programs or putting new ones in place simply isn’t in the cards.

In fact, despite a $70 million budget surplus this year and a projected surplus of $100 million for the upcoming fiscal year, the talk around City Hall is about finding ways to keep existing programs and services from being cut, not adding new ones.

“It’s the new or enhanced services that are most likely to be impacted by Rampart,” said City Administrative Officer Bill Fujioka. “We’re trying to make sure that existing city services are not impacted.”

Councilman Mike Feuer agreed that the scandal is having an impact on the potential expansion of services.

“Is it possible for us to set aside funds and preserve the existing city programs and services that are on the table?” Feuer asked at a Budget and Finance Committee hearing he chaired last week. “That is the common goal all of us have, irrespective of how we choose to fund the Rampart liability.”

Services that could suffer because of Rampart include expansion of the city’s affordable housing program, neighborhood cleanups and acceleration of street repaving.

Also in jeopardy could be proposals calling for a decrease in city revenue, the most prominent of which is the business tax reform plan passed by the City Council a year ago. Implementation of that plan which calls for the city to grant businesses up to $29 million in tax cuts has been stalled ever since as the city began struggling to find ways to plug that loss of revenue.

After last week’s hearing, the three-member Budget and Finance Committee voted to recommend that the City Council reject Riordan’s plan to use tobacco settlement revenues to cover Rampart liabilities and instead set aside $20 million from next year’s budget and again from the 2001-02 budget. That money would then be placed in a special reserve fund, with any further allocations coming when settlements start rolling in.

The full City Council is set to consider the recommendation this week.

Much of the debate leading up to that committee decision focused on how to reduce the risk to existing city services.

The major advantage of the Riordan plan to issue $91 million in bonds to be repaid from the city’s $300 million share of tobacco settlement funds is that it would tap into an entirely new revenue stream, leaving the city’s general fund intact.

“Why do this? It’s simple. It’s not our money,” said Robert Larkins, a principal with Morgan Stanley Dean Witter, which is advising the city on the plan.

And, proponents say, because the city would not have to tap the general fund to make bond repayments, it would not add to annual debt payments, which now stand at 5.75 percent of the $2.8 billion annual general fund.

The city’s self-imposed debt limit is 6 percent, the level at which municipal bond rating agencies begin to look at downgrading credit ratings. A downgrading would translate into higher interest rates when the city goes to Wall Street to borrow money.

The national tobacco settlement reached in December 1998 calls for tobacco companies to pay 46 states, including California, a total of $206 billion over 25 years to cover public health care costs. In L.A., those tobacco settlement dollars were to have gone to sidewalk repairs and renovations to put the city in compliance with the Americans With Disabilities Act.

Last week, Deputy Mayor of Finance Jennifer Roth pledged that the curb cuts would be completed with other city funds. In the zero-sum budgeting game, those other city funds could have gone elsewhere, perhaps to new or expanded programs.

There also is the prospect that the actual settlements and judgments stemming from the Rampart corruption scandal could far exceed the $91 million provided up front in the Riordan plan, forcing the city to both forego the bulk of its tobacco settlement dollars and tap into supposedly sacrosanct general fund revenues. The initial official estimate of the Rampart liabilities was pegged at $125 million, but last week a figure closer to $200 million was circulating at City Hall. Meanwhile, outside estimates range as high as $1 billion.

City officials point out such estimates are premature because settlements could be years away.

The uncertainty is a major reason Fujioka and Chief Legislative Analyst Ron Deaton oppose the Riordan plan in favor of a more pay-as-you-go approach, which the Budget and Finance Committee ultimately adopted.

Fujioka and Deaton presented the Budget and Finance Committee with a plan to put $20 million per year for the next several years into a special reserve fund. Then, as needed to meet settlement costs, the city could issue what are called “judgment obligation bonds,” to be secured by the $20 million a year the city has been setting aside.

The advantage of this plan is twofold, advocates say. First, because the judgment obligation bonds would sell at anywhere between 4 percent and 5.75 percent interest, they would be cheaper to finance than the proposed 6.75 percent interest rate on the bonds that would be sold against tobacco settlement dollars. Second, it offers more flexibility, since the judgment obligation bonds could be sold piecemeal on an as-needed basis, thus avoiding premature interest payments.

But the big disadvantage of the plan is that it dips directly into the general fund and might do so for several years to come. This year and next, the city has identified debts that are set to be retired, so money previously earmarked for those payments could be transferred to a Rampart reserve fund. But beyond that, other revenue sources would need to be found.

What’s more, if the economy were to slow down and the city face budget deficits, existing city services could be on the cutting block.

Such a scenario could also put the city’s debt burden above the 6 percent threshold, especially if the settlements range into the hundreds of millions of dollars.

“When the final numbers come in on the settlements, and they threaten to put the debt burden above the threshold, that’s the time when the rating agencies say this will impair the city’s obligations to provide services for its citizens,” said Zane Mann, publisher of the California Municipal Bond Advisor in Palm Springs. “And if the settlements come in when there is a budget deficit, the 7 percent threshold could be crossed, which would be very serious.”

Whatever plan is ultimately adopted, council members remain skittish about the prospects for next year’s budget, which is due to be presented by Riordan on April 20.

“I have great concern about the drain on fiscal resources that the Rampart specter creates,” said Councilwoman Laura Chick.