Increasingly, Gov. Arnold Schwarzenegger appears to be in the municipal bond business. Last fall, he championed the passage of almost $40 billion in bond measures on the state ballot, mostly for infrastructure. In his State of the State speech, he called for Californians to pass $29 billion in additional bonds over the next three years. And in the budget he proposed during January, he called for spending more than $11 billion of bonds during the next 18 months.

But what business is Schwarzenegger really in? There’s a pretty good argument that he is – or should be – in the business of shaping the next generation of California’s growth.

As I have said before in this space, California has long since outgrown its “design capacity” of about 20 million people, which was created by the postwar infrastructure investments. The cost of living is high, the population continues to grow, the coastal metro areas have run out of land, and the inland areas are sprawling quickly, often without enough infrastructure to support the sprawl.

A new vision is needed, and Schwarzenegger is in an enviable position to provide one. He is the most popular governor since Earl Warren; he has way more money to spend on infrastructure than anybody since Pat Brown. And he likes to think big.

Whether all these qualities will translate into a new vision for the future of California remains to be seen. A vision would require a commitment to do some things and not others – most particularly, to concentrate money and infrastructure in some places and not others. Even though he ran as a centrist, Schwarzenegger is a Republican with ties to the building industry and the transportation lobby. And he must deal with labor-oriented legislative leaders.

The bonds, of course, can’t be spent all at once, and most of the money will be spent after Schwarzenegger leaves office. Wall Street can absorb only so much in California bonds at any given time, and the state can afford only so much in debt payments. He has already proposed spending $2.8 billion in the current fiscal year – most of it for schools – and almost $9 billion next year, with a significant chunk of that going to transportation. (He proposes a slow start for housing, flood control, and the Proposition 84 land conservation money, which comes from an initiative rather than a measure he brokered with the Legislature.)

But if Schwarzenegger wants to be visionary, the most important thing that he could do is create a consistent set of criteria for doling out the money. These criteria don’t necessarily need to embody pure “smart growth” ideas, but they do have to convey a sense of vision and direction. Otherwise, California’s growth for the next 20 years will be just haphazard enough that the state could become less competitive in the future.

Environmental groups such as the Sierra Club suggest reviving implementation of AB 857, the 2002 law that requires all state agencies to pursue three smart growth-oriented goals: infill development, compact greenfield development, and protection of agricultural and natural resource land. The bill required the governor to submit an implementation plan to the Legislature – which Gray Davis did in November of 2003, just an hour before he was replaced by Schwarzenegger. That was pretty much the end of AB 857.

Strict implementation of AB 857 would meet with strong resistance from the building industry, which would fear a restriction of buildable land in the Central Valley especially, and probably also from the transportation lobby, which would fear a de-emphasis on highway construction.

At the same time, Schwarzenegger should have strong motivation to follow an AB 857-type approach in order to pursue his own environmental agenda. Last September, Schwarzenegger signed AB 32, which creates a statewide cap on greenhouse gas emissions in 2012 and ratchets that cap downward significantly by 2020. It is extremely unlikely that California could meet the emissions reduction goals based on technology improvements alone. Some shift toward more efficient land use patterns is probably also required. And this is where a visionary approach from Schwarzenegger could be cutting-edge.

Most of the money in the bond package will go to transportation. Proposition 1B set aside $1 billion for improvements to Highway 99 in the Central Valley. Environmentalists fear such earmarks will lead to more sprawl – but highway improvements in some parts of the state (especially the Central Valley and critical connector links in the metropolitan freeway systems) will be necessary no matter how the state grows. Schwarzenegger has a great opportunity because virtually all of the transportation money will be doled out by the California Transportation Commission under criteria yet to be determined.

More important is the fact that the transportation bonds have many other pots of money in them that could be subject to criteria linking land use and transportation. For example, 1B also creates a “State-Local Partnership” account and stakes it with $1 billion.

The governor could create powerful incentives to shift the state to a less sprawling growth pattern if he paired transportation funds like the State-Local Partnership with land use funds contained in Proposition 1C. The housing bond contains $850 million for infill development and $300 million for transit-oriented development, but so far nobody knows quite what this means. The governor has a great opportunity to define what this means – target locations and projects that will kick-start infill and transit-oriented development in places where the market is not quite ready – and reinforce those developments with compatible transportation projects out of Proposition 1B.

Schwarzenegger even has a great opportunity to use Proposition 84 to reinforce this vision. Although Proposition 84 funds are less within the governor’s control because it is a ballot initiative with many earmarks, land conservation funds could be used in coordination with highway funds to alleviate environmentalist fears that roads will lead to sprawl. These funds could be combined with the housing funds to create a comprehensive strategy to target specific nodes for future growth, whether transit-oriented in the coastal metros or auto-oriented in the inland areas.

This combination could become even more powerful if the governor leverages all of these pots of money into a decent run at reform of the California Environmental Quality Act. CEQA needs streamlining, especially to promote infill development. But the homebuilders want streamlining for every location, not just infill locations, and environmentalists fear that streamlining means weakening. Judicious use of Proposition 84 funds in rural areas and 1C funds in urban areas might help to clarify where development will and will not occur – thus opening the door for some legislative reform of CEQA.

There are also opportunities to help fund and reinforce local planning efforts that adhere to a new vision for California’s growth. These opportunities lie not only in giving planning grants to local governments but in using the state’s leverage. There is considerable money in the higher education bond, for example, to mitigate the impact of campus expansion on surrounding communities.

An even bigger step would be to bring the K-12 school construction money into the mix, because this represents the state’s largest construction program. School districts often favor sprawling locations because they are cheaper. However, the school construction program sits completely separate in the state bureaucracy from transportation, housing, and CEQA – and so it would be very difficult to bring within a new vision.

Even a popular governor like Schwarzenegger might not want to engage all the interest groups required to take advantage of the opportunity that the bonds create. But if he’s serious about shaping a new vision for California – especially in light of his greenhouse-gas bill – he’s going to have to take on at least some of these interest groups and promote an alternative approach to growth.