The whole system is a mess. As wasteful as it can be, all residential use is only a small fraction of water consumption in this region. An order of magnitude more is used to grow water intensive crops in the SW deserts, and those farmers are only paying on average 1/10th the price per gallon for that same water as people pay for their home use. In many cases the farmers are incentivized to not be more water efficient, because the old water rights can be use it or lose it. They are essentially being paid to waste obscene amounts of water.

Municipal use and waste get the most attention because they are by far the most visible use, but most policies there are just tinkering around the edges and hardly move the overall numbers.