When Gov. Jerry Brown unveils his budget proposal Tuesday morning, Democratic lawmakers will be particularly interested in how the governor approaches two key policy areas: transportation and housing.

While state leaders got a lot done in 2016, there was no grand deal on how to tackle two of California's most vexing and expensive infrastructure challenges. Now, Democrats in Sacramento -- who control both houses of the Legislature -- say that improving aging transportation infrastructure and building more affordable housing are among their top priorities in 2016.

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Lawmakers who have pushed for state solutions to both issues in the past said they're optimistic that the time is right.

"I think all indications are that there is a great desire among the whole spectrum of my colleagues to really focus on these issues of housing and transportation in a way we haven't in the past, so I am hopeful," said San Francisco Democratic Assemblyman David Chiu.

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Of course, state leaders need to find money to tackle either problem -- and that's where the challenge lies. Last year, a special session called by the governor in 2015 to deal with the state's estimated $130 billion in road repair needs ended without any agreement on how to fund those fixes. Another proposal by Brown to put $400 million into low-income housing development if lawmakers agreed to relax building regulations died amid concerted opposition by environmentalists, local governments and the construction trades.

In August, Assembly Speaker Anthony Rendon declared a $400 million affordable housing package 'dead,' pointing to intense opposition to Gov. Jerry Brown’s proposal to relax local land-use rules, which was included in the package. (KQED)

Democrats now have a two-thirds majority in both houses of the Legislature -- meaning that in theory, they could pass a gas tax or other tax hike without Republican votes. It's not clear whether moderate Democrats are any more willing to back tax hikes than GOP lawmakers are, but Chiu said he think there's room for agreement, since the issues transcend regional differences.

"I do see a path in part because these crises have only intensified -- the housing crisis that started in San Francisco and the Bay Area has spread to the entire state of California," he said. "And Californians up and down the state are very frustrated with the state of our roads, with the lateness of public transit, the lack of real options to get around and the tremendous congestion we face on the roads."

State Senate President Kevin de León said there is agreement among both houses of the Legislature and the governor that a transportation infrastructure plan is needed. He hopes to get it done within months -- and with Republican support.

"My hope is that we can get it done in a bipartisan fashion, irrespective of the supermajorities that we currently enjoy in both the Assembly and Senate, because a transportation infrastructure package is a vote for continued economic growth of the middle class of California," said de León, D-Los Angeles.

San Jose Sen. Jim Beall has been one of the Legislature's most vocal supporters of a transportation deal. He noted that lawmakers already have legislation in front of them in both houses -- in the Senate, he authored SB 1 -- that would raise about $6 billion a year through an increase the gas tax and car registration fees. That plan is more expansive than the 6-cents-per-gallon tax proposed by the governor last year, but less ambitious than earlier proposals of Beall and other Democrats.

"Road repairs are something that if we don't do, it's like an unfunded liability -- it is wrecking the economy," Beall said. "The governor has said it makes no sense to let things deteriorate further."

He said he expects Brown to make a proposal similar to the one the governor's office put out in 2016 and he hopes they can strike a deal.

Housing Agreement Further Off

While there is at least agreement between lawmakers and the governor on potential funding sources for transportation, common ground on housing may be a bit stickier. Brown's proposal last year was seen by critics as a giveaway to developers that would have done little to spur affordable housing production.

This year, lawmakers have a host of ideas on the table. Chiu and other Democrats in the Assembly unveiled a legislative package in December that includes a proposal to eliminate a tax break for second homes, $400 million a year they want to redirect toward affordable housing development. In the Senate, Beall and San Diego Democratic Sen. Toni Atkins are looking to tack on a $75 fee to real estate transactions to fund the construction of low-income homes; they also want to put a $3 billion housing bond before voters.

Luxury housing under construction in San Francisco in 2015. (Anya Schultz/KQED)

It's not clear whether Brown, who has been reticent to add to the state's debt or increase taxes and fees, would support either proposal. Assemblyman Phil Ting, who is a co-author of the Assembly proposals, said he thinks there is room for agreement with Brown and others who may be wary.

Ting, D-San Francisco, said the state needs to take a bigger role in funding affordable housing development after taking a step back in recent years.

"But we also heard loud and clear the governor's desire to streamline the development of housing so we can reduce those costs, so public dollars can go further, which makes a lot of sense," he said. "I think there are different proposals we are looking at that can balance the interest of different groups."

What About Trump?

The wild card in all of this is what a Donald Trump presidency will do to the state budget. The president-elect has threatened to strip funding from "sanctuary" jurisdictions like California that limit their cooperation with federal immigration officials, and there's huge uncertainty over what a repeal of Obamacare will do to the state's Medicaid program, Medi-Cal.

On the other hand, Trump has repeatedly talked about investing in infrastructure. Democrats said they're open to working with the new president, but are skeptical of how Republicans will go about paying for an infrastructure package.

"Where we can find common ground with Washington we will find common ground, but to move an infrastructure package at a national level by incurring much more debt, and by rolling that debt over year after year, is not the most fiscally prudent thing to do," de León said. "You can't offer free money because there's no free money -- somebody has to pay for it eventually."

In Sacramento, lawmakers agree, the heart of the debate this year will focus on that exact question: how to pay for the investment they believe the state desperately needs.

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Katie Orr contributed to this report.

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