I went back and looked at the requirements for TE funding, see below. The federal TE funding has provisions for "major rehabilitation" of shared-use paths such as the Omar Rains path at Surfers Point. There are many examples around the state where TE funding has been used for landscaping portion of a project, sometimes not even directly related to a bike path.
The Federal Government today is working to reform transportation practices to recognize multi-purpose projects (i.e. green infrastructure.) This project could be a showcase for intelligent use of federal and state funding in the public interest, and an opportunity for CalTrans to provide a leadership role... or not?

http://www.fhwa.dot.gov/environment/TE/teas.htm
1. Provision of facilities for pedestrians and bicycles.
New or reconstructed sidewalks, walkways, or curb ramps; wide paved shoulders for nonmotorized use, bike lane striping, bike parking, and bus racks; construction or major rehabilitation of off-road shared use paths (nonmotorized transportation trails); trailside and trailhead facilities for shared use paths; bridges and underpasses for pedestrians and bicyclists and for trails.
EXAMPLES: http://www.enhancements.org/projectlist_search.asp
Dublin Transit Center Streetscape Improvements - pedestrian improvements, landscape
Firebaugh Gateway Landscaping And Bike Trails- construct bike trails, landscaping, bike racks
Park Street Streetscape And Santa Clara Avenue Transit Hub- streetscapes, lighting, landscape, bike racks and lockers
Shaw Median Island Landscaping Project- landscape and irrigate median strip (in and near the City of Fresno, along Shaw Ave. between Highway 99 and Golden State Blvd.)
Redwood National Park Davison Trailhead - trailhead with information kiosks, parking, elk-viewing deck and revegitation (sic)
Main Street Walkway, Landscaping And Decorative Lighting In Kelseyville - walkways, landscaping and lighting (in Kelseyville, along Main St. from Gunn St. to Second St.)
Sespe Creek Bike Path - Phase II - grading, paving (bike path), fencing and landscaping