Is this story really saying that Caltrans is going to go after Prop. 1B funding for improvements to Highway 36? To Highway freakin' 36?

I think it is saying that.

Prop. 1B, you'll remember, was a state bond measure designed to alleviate traffic congestion on highly impacted transportation corridors. And so it seems that some Caltrans folks and some others over in Lassen County have decided that the jampacked Arcata-Reno run via good ol' 36 fits the bill perfectly:

He [Lassen County Transportation Committee Chairman Jim Chapman] said as the corridor will become a viable alternative that will grow for years to come to serve not only the north state’s economic needs, but security needs and the economic needs of this country.