California has embarked on a sweeping effort to curb suburban sprawl by rewarding communities that build homes and workplaces closer together to reduce pollution that contributes to global warming.

However, a multibillion-dollar proposal to curb air pollution near the state's ports was rejected by Gov. Arnold Schwarzenegger, who concluded that the related cargo fees would harm an already suffering economy. The state's water crisis also attracted his attention Tuesday as he approved $842 million to boost the water supply and bolster endangered levees.

Under the new law, projects built in denser communities will get priority in the distribution of $12 billion to nearly $20 billion a year in transportation funds -- a hefty incentive for communities to create more environmentally friendly development plans.

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