How far into the weeds are you willing to go? I've had half a dozen engine and transmission combinations in my Fifth Avenue over the last twenty years. Been through the entire suspension from relatively inexpensive to why-the-fuck-am-I-spending-this-much-money?
If you're staying in CA, then don't even think about modifying the motor or controls in any way. Just don't open the can of worms of having tons of time involved in it only to find out you can't pass smog. What you have is what you get.
I'll try and structure this advice around your living arrangements allowing for the possibility of moving later on and being budget minded. So start here:
Grab the following from an AHB Diplomat cop car:
-8.25" rear axle with rear sway bar, including the shock plates
-front sway bar (it's an 1/8" thicker than the non-fleet models)
-five leaf spring pack
The 8.25" axles came in too flavors depending on how they were ordered, so verify the housing is a Sure Grip. If it is then it will have the 2.94:1 gears and this is what we want.
Grab the following from an early 90's Dakota:
-500 4 speed transmission
-speedometer cable (non cruise control model)
-speedo gear housing (has to be from truck not equipped with cruise control)
The axle is a simple bolt in affair with the sway bar. So is the front sway bar. The 500 will require modification to the transmission tunnel. I won't cover it here, but if you can weld it isn't bad. You may want to get the five leaf springs re-arched from a shop, or just get new springs. Your call.
Take this time to burn in sub frame connectors. You don't need to go to the floor. Connecting the rear and front sub frames is more than enough. This is a NIGHT AND DAY difference in the handling of the car without sacrificing comfort. $150 worth of steel is the only investment if you can do the work yourself.
Use a nice set of cruiser shocks like Monroe Sens-a-tracks.
What the above is going to give you suspension wise is a very comfortable cruising M body that can make a lane change at speed without diving into it. Slightly firmer suspension, but still very, very comfortable. Power wise the only thing you can do is make better use of what you have, so lowering the rear gear and adding an OD will do just that, and it'll do it without sacrificing any of your economy. You'll even gain mileage in the city since the motor doesn't have to work so damn hard to get the car moving from a stop.
Now, for the motor and after you're out of CA. Get a 5.2L or a 5.9L Magnum out of an early 90's Ram complete with the entire harness and ECU. The electronics and harness in this period were separate from everything else. Reuse the factory 318 exhaust manifolds as they're good for 300HP. Dual 2.25" pipes running to a 2.5" single to go out the back. You can swap it all right over and the only thing you'll need to science out is a fuel system; which isn't hard at all with aftermarket parts. 230HP and 300+ ft/lbs of torque with the drivability of MPEFI with a torque curve that starts at idle.
This is all off the cuff. If this is something you want to do I can help you with more details.