Water budgets (often associate with Irvine Ranch Water District) are increasingly popular as a means of establishing "reasonable" consumption levels for residential users who have different water "needs."
They basically put properties into categories (by number of residents, lot size, landscape footprint, location and/or heat profile) and then give similar properties the same "budget" for water. People who use less than the budget pay very little, but people who use "too much" pay very high rates. (IRWD rates start at about $1/unit of 748 gallons; they peak at $8.50/unit for "wasteful use".)
This 5pp PDF (via DW) outlines how water budgets can meet legal constraints while encouraging conservation of water in excess of the "budget".*
Read the whole paper -- it's an excellent guide to rates and laws in California. Given the complexity of overlapping (perhaps conflicting) laws, guidelines and institutions. [Also see this post.]
After you do that, reflect on how simple and fair my person-centric version of budgets is. The only measure that a water manager needs is the number of people in the house. No need for lot sizes, landscaping density, temperature zones, etc.
Bottom Line: Water prices and allocations should reflect our common sense: Survival water for people is a RIGHT; commodity water for lawns, etc. is a LUXURY. Like the bumper sticker says:
* The article discusses a key point of California's Proposition 218, which requires that voters approve fees associated with property. Although 218 was not obviously directed at water bills, California's Supreme Court ruled in the 2006 Bighorn-Desert View Water Agency v. Verjil decision that "water is indispensable to most uses of real property." That decision means that changes in water prices need to follow a certain procedure (45 days of notice, public hearings, etc.) before they can be implemented AND that water prices must reflect some underlying cost of service.
At first glance, my "some for free, pay for more" water pricing proposal may appear to violate Prop 218. Why? I think that the prices in higher tiers should be high enough to choke demand, which may be higher than the cost of service.** Although I will address that complaint in another post, I want to point out that my "human based" system (the amount of "some for free" depends on the number of people, not property characteristics) is not based on property. I would thus argue that "people-centric" prices are outside the purview of Prop 218. Flipping the court's comment on its head, there is no point of having water on an urban property without people. (OTOH, Prop 218 DOES apply to agricultural land, for the reasons given by the court.)
** The authors of the article point out that rates in higher tiers CAN be much higher, since Prop 218 can be interpreted to apply ONLY to the price of water in the budget-based lower tier. This is good news from a different perspective.