California does not need more multi-billion dollar water projects to prevent a water shortage. Instead, a market system offers the best solution. The real issue is poor allocation and management. California's current water policy fails because it is based on centralized control rather than market incentives. Arbitrary rules set by state resource agencies govern who gets how much water and at what price, causing prices to vary greatly among users and ensuring that they do not reflect the water's true value.
Subsidies contribute significantly to the problem as well.
Artificially low prices for water provide farmers with little incentive to conserve. Furthermore, even if farmers want to sell their water to municipalities, current law rarely allows for such transfers. All of this leads to misallocation, poor conservation, and numerous environmental and political problems. Getting the incentives right. A statewide water market would prevent shortages by increasing efficiency and promoting water conservation.