Rostenkowski Signals He Will Fight : Congress: Barring a last-minute shift, prosecutors could seek grand jury indictment this week on corruption charges. Illinois Democrat could get trial delay.

Rep. Dan Rostenkowski (D-Ill.) has signaled that he intends to reject any plea bargain and vigorously contest anticipated charges that he abused his office by diverting public money for personal use, associates of the powerful lawmaker said Saturday.

Unless Rostenkowski should have a last-minute change of mind, federal prosecutors are expected to seek a grand jury indictment early this week, possibly on Tuesday.

“He’s not giving up, he’s going to fight it,” one associate said of the 18-term congressman.

Other sources said Rostenkowski is reluctant to resign from Congress, which acceptance of a plea agreement would involve, and admit to a series of felonies that would permanently scar a Capitol Hill career of more than 35 years.

“This is one tough, determined guy,” another friend said.

A spokesman for Rostenkowski said Saturday that he had no immediate comment on the matter.

According to federal sources, an indictment is likely to allege that Rostenkowski defrauded taxpayers of thousands of dollars through both his Washington and Chicago offices.

That sum would include cash he allegedly received improperly from the House post office in transactions disguised as stamp purchases, and government funds misused to buy furniture and gifts for friends and constituents, the sources said.

Once indicted, Rostenkowski, 66, would have to step down as chairman of the House Ways and Means Committee under House Democratic rules, but he still could remain as a member of the tax-writing panel, which has been considering President Clinton’s health care plan. If he were acquitted of the charges, he could then regain his chairmanship.

Rostenkowski’s lawyers have advised him that a plea agreement would enable him to avoid the humiliation of a public trial and the prospect of conviction and a prison sentence longer than the one-year term understood to be part of the agreement.

However, Rostenkowski, who is represented chiefly by Robert S. Bennett, one of Washington’s most skilled defense attorneys, probably could force a delay of any trial until after the congressional elections in November, legal sources said.

His decision to contest the anticipated charges, pending a change of heart, scuttles three weeks of intensive negotiations between Bennett and U.S. Atty. Eric H. Holder Jr., a Clinton Administration appointee who inherited the two-year investigation last fall from his Republican predecessor, Jay B. Stephens.

One source said Rostenkowski, while rejecting various proposals offered by Holder in recent weeks to settle the case with a guilty plea, has not yet authorized Bennett to abandon the talks totally. “But this undoubtedly will happen by Tuesday,” the source said.

A federal official close to the prosecution said Holder, in fact, is ruling out an eleventh-hour change of mind by Rostenkowski and is putting the finishing touches on an indictment to present to a grand jury after the Memorial Day holiday. The official said negotiations “are at a standstill.”

He also said Holder has been given full authority to proceed with the case as he sees fit without intervention by Atty. Gen. Janet Reno or high-ranking Justice Department aides. Holder sent an outline of the proposed charges to the Justice Department late last month.

An indictment of Rostenkowski likely would include allegations that he:

* Illegally converted stamps to cash for his personal use through the House post office between 1985 and 1991. Former House Postmaster Robert V. Rota, who pleaded guilty to charges last July and would be a key trial witness for the prosecution, has alleged that he improperly transferred $21,000 to Rostenkowski.

* Misused official funds to buy expensive gifts for friends from the House office-supply service. In an admission of wrongdoing, Rostenkowski has already reimbursed Congress about $82,000 for office supplies purchased by his office over a period of six years.

* Converted government-leased autos to his personal ownership.

* Improperly used government funds to pay a number of so-called ghost employees who performed no official work.

Removal of Rostenkowski from the Ways and Means chairmanship, which he has held since 1981, would harm efforts to approve Clinton’s health care reform plan. The massive proposal is running into difficulty in other House committees, and Rostenkowski’s legendary power was expected to boost its prospects in the Ways and Means panel.

The Illinois Democrat could, however, still exert a measure of influence on the legislation by remaining on the committee. Such an arrangement might seem odd, but there is precedent: Wilbur Mills yielded the chairmanship of the Ways and Means Committee in the mid-1970s after publicity about his antics with a stripper, but he remained on the panel as a member.

Speculation about Rostenkowski’s replacement as chairman has centered on Rep. Sam Gibbons of Florida, the ranking Democrat on the panel. But with Gibbons considered more informed on trade matters than health care reform, Rep. Robert T. Matsui (D-Sacramento), another senior committee member and a Rostenkowski loyalist, may challenge Gibbons for the post.

If that should happen, Reps. Pete Stark (D-Hayward) and Charles B. Rangel (D-N.Y.), both of whom are senior to Matsui, also might seek the job, according to congressional sources.

In contesting an indictment in court, Rostenkowski would be playing a high-stakes game that automatically could result in a lengthy prison term if he were convicted, regardless of the sympathies of a sentencing judge.

For example, in a fraud conviction involving a loss of more than $200,000, federal sentencing guidelines call for a term of 15 months to 21 months for a defendant with no prior criminal history, as would be the case with Rostenkowski.

If the loss is judged to be smaller--for example, between $70,000 and $120,000--the sentence would range from 10 months to 16 months. However, in a fraud conviction involving abuse of a position of public or private trust, as would apply to a member of Congress, the guidelines call for automatically increasing the period of incarceration by five months.