Via Ryan Avent, the California legislature is looking to promote so-called "smart growth" in the state by steering transportation dollars toward projects that reduce, rather than increase, vehicle-miles traveled:
The legislation, SB 375, would offer incentives to steer public funds away from sprawled development. The state spends about $20 billion a year on transportation, and under the new law, projects that meet climate goals would get priority.
An earlier version of the bill was blocked last year by the building industry and by organizations representing cities and counties. Developers feared their suburban projects would be delayed or halted. Local officials were wary of ceding zoning powers and transportation planning to the state.
The bill's expected to pass this week, but no word on whether Schwarzenegger will sign it (as Josh Patashnik once wrote, these lifestyle-altering measures don't really mesh with his brand of environmentalism). Under the new law, cities and countries would be able approve any sort of development they want, but only certain types of development—clustered housing, say, or projects located near transit—would qualify for state transportation funds. Plus new incentives for infill development and construction along transportation corridors. The idea, ultimately, is to chip away at the need for driving, since, if nothing changes, the growth in vehicle-miles traveled—as California adds 9 million more people by 2030—is expected to negate everything else the state does to curtail its carbon-dioxide emissions.
A number of states have tried to promote smart growth here and there over the years (it's now forgotten, but Mitt Romney was once one of the more proactive governors on this front), but it hasn't always panned out. Many of these attempts fall afoul of local property-rights' movements: Portland's urban growth boundaries, for instance, eventually fostered a backlash that led to Measure 37, putting a damper on land-use regulations. But a "softer" approach like California's might prove more feasible. At least in the abstract, it's fair enough to have the government shift money toward slightly denser development—states have, after all, used transportation funds to subsidize suburbia for the past half-century. But these sorts of efforts are always more explosive than most environmental measures, so this will be one to watch closely.
P.S. I should clarify: This bill definitely won't move everyone back to cities and denser inner-suburban rings, and it won't create development patterns that allow everyone to ditch his or her car. As teplukhin points out in comments, even if people wanted to do that, you would need a lot of different elements in place—$4 gas isn't going to convince families to relocate to the city if the public schools are still abysmal, for starters.
Odds are you'll mostly see an impact at the margins, like, for instance, more transit-oriented development near rail stations, similar to Oakland City Centre, with the sort of condos that are typically bought by retirees or childless couples. That's obviously not for everyone, but it does move people off the roads and eases up the pressure to keep building outward into the exurbs. That's just one example: You might also start to see somewhat denser, more walkable suburban family-oriented neighborhoods, similar to what Denver's starting to build—where people would still have to commute to work by car, but could more easily get around their own neighborhood without driving. Even modest reductions in auto travel can still add up.
P.P.S. Bill Fulton has some doubts that the new law will be as far-reaching (or novel) as some of its supporters seem to think.