In November, voters rejected an initiative that would have overturned the gas tax and road funding.

Newsom wants the state to demand more aggressive goals for housing production, and use the SB 1 funding as a stick toward local governments, to push them to facilitate development.

“You don’t reach those goals, we’re going to take SB 1 money from you," Newsom said at his budget press conference in January.

Legislators at a joint hearing of the Budget Subcommittee No. 4 on State Administration, the Assembly Housing And Community Development Committee, and the Assembly Local Government Committee told administration officials that the benchmarks were unfair, and the source of proposed funding inappropriate.

"I think that the voters do have a certain expectation that those funds be used for what was promised," said Assemblyman Jim Cooper, D-Elk Grove. "And now to change that mid-stream, I think that’s going to rub a lot of folks wrong."

Newsom's proposal, which has not yet been formulated into a bill, would keep the money dedicated toward transportation. But critics argue that worthy road repair projects in cities that aren't meeting housing goals could be deprived of funding.

Other legislators said cities should only be judged on how they plan for housing development, since actual production of new units can be subject to the whims of the market.

"You’re tying SB 1 money to the production, where cities are only accountable to planning for it," said Assemblywoman Tasha Boerner Horvath, D-Encinitas. "There’s a flaw in that logic."

Representatives with the Newsom administration's Department of Finance assured lawmakers that the transportation funding-housing production link is still being formulated.

"There are multiple different goals that could be looked at and determined whether good faith progress is being made toward housing goals," said Steve Wells, with the Department of Finance. "So I think that’s all part of the deliberation that’s happening before we decide on any final numbers or final goals or what is going to be tallied to determine compliance."