I'd say that the solution would be LESS, not more, federal involvement in water policy. As you point out, the natural management unit is a watershed -- not a State border -- and locals can "manage" their watershed with more sensitivity than any federal agency or politician.So, yes, I am saying that I'd prefer zero regulation and zero funding of water at the federal level. I'd prefer a common law defense of water quality and local funding of water projects. (The feds should only get involved on interstate issues.)
In fact, I'd go further and say that federal interference (through regulation AND funding) has done more to paralyze and thwart watershed management than any other influence.
It's my experience that the biggest blunders in water management (in the West, at least) have been orchestrated by federal bodies (USACE, Reclamation, Interior). Without their malevolent influence, we'd not only have fewer disasters in our past but be able to do more RIGHT NOW.
Bottom Line: Washington DC has no more clue about how to manage water in California (or anywhere else) than what I should have for lunch.