Recycling does not provide a new source of water that can be exploited in upstream areas without leading to bad basin-wide outcomes.*
In California these bad outcomes are pushed by state policies to increase recycling (typically meaning consumptive use) statewide, when in fact this only makes ecological sense in areas near terminal drainage, i.e., the coast. If you're in mountain or inland regions (i.e., Central Valley) then recycling will reduce flows and quality to next uses or groundwater recharge (increasing aquifer salinity has stopped all civilizations that get efficient with (irrigation) reuse).
This is as bad as some outside user taking water out above the watershed and piping it out of basin, leaving the basin with less and lower quality water (think Hetch hetchy, delta tunnels). This problem with recycled quality can be mitigated by salt removal (reverse osmosis) but again that only makes sense at the areas of terminal drainage as they can send the brine to terminal drainage too. Inland, it creates a hazardous waste to be disposed of at great cost. But even then there will be less flow out of the system and that flow is what it takes to keep the basin fresh, long term!
Needless to say this works against the development community which sees recycling as a cheap source of new water, if they can “green shame” others into paying for it :(
[Their ]Bottom Line: Yes, recycling provides drought resilience but not as a long term new source.
Based on the findings, the researchers have determined that suggestions of reusing wastewater for irrigation and other consumptive purposes may be detrimental to the river.
"Back in 2012 when we were having a drought in Indiana, people were looking at reusing wastewater for irrigating," Jafvert said. "Well, if you diverted wastewater to irrigation instead of letting it flow back into the river, then the river flow's going to get even lower. The point is, the river is not this immense untapped source of water that's available for us to use in times of stress. It's already being used."