An unlikely coalition of environmentalists, builders and local governments announced agreement Wednesday on landmark legislation that would pull state transportation money from projects that contribute to sprawl.

The deal – brokered by Sen. Darrell Steinberg, D-Sacramento – offers local governments regulatory and other incentives to encourage more compact new development and transportation planning.

Environmentalists called Senate Bill 375 the most important land use bill in California since enactment of the California Coastal Act three decades ago.

The legislation – which has passed the Senate and must now be approved by the Assembly and signed by Gov. Arnold Schwarzenegger – uses as its model "smart growth" policies adopted by the Sacramento Area Council of Governments.

Steinberg called the deal the first time within memory that environmentalists, builders and local governments have agreed on how to accommodate the state's growth.

"It is also the first time in the country that the issues of land use, transportation, housing and climate change have been brought together in a comprehensive piece of legislation," Steinberg, the Senate's incoming president pro tem, said at a Capitol news conference.

The legislation is intended to help the state's regions comply with Assembly Bill 32, which Schwarzenegger signed two years ago. The law requires California to reduce its greenhouse gas emissions to 1990 levels by 2020.

Under SB 375, the carrot that the state would use to encourage more compact development is the $5 billion in transportation money it allocates each year. Projects meeting the bill's goals will be funded. Those that don't, won't.

Land use policy, regional housing decisions and the California Environmental Quality Act are generally regarded as sacred cows, minefields for anyone who wants to alter them, said Tom Adams, president of the California League of Conservation Voters.

"The bill is a trifecta," Adams said. "Senator Steinberg has managed to pull together a bill that brings some of the most important and most difficult statutes into alignment."

The legislation would change how regions make transportation decisions to encourage development that increases affordable housing and reduces commute times, emissions and gasoline consumption, Adams said.

The legislation also would amend the California Environmental Quality Act so that the review process rewards projects that improve air quality and energy conservation.

The deal was sealed when environmentalists and builders – historically enemies – hammered out their differences.

Ray Becker, chairman of the California Building Industry Association, said he has spent three decades fighting "regional planning and regional government."

"(But) we cannot continue to do business as usual," Becker said. "We all agree in one way or another to change the way we do business to be able to come together in this historic agreement."

California's home builders, Becker said, will get a streamlined approval process.

Sacramento Mayor Heather Fargo, vice president of the League of California Cities, said the organization's board unanimously endorsed SB 375.

"That is not something that we thought a week or two ago was going to happen," Fargo said. "Without the leadership of Senator Steinberg, I don't think we'd be here today."

Local jurisdictions will still make planning decisions, Fargo said, just as they do under the blueprint adopted four years ago by 22 cities and six counties in the Sacramento region.

"There are incentives in place that will reward those cities that chose to do smart growth, that chose to do smart planning," she said. "If you still want to do it dumb, you can, but you don't get the incentives."

Call Aurelio Rojas, Bee Capitol Bureau, (916) 326-5545.