Its not like California couldn't use the money. Its government is doing better than it was five years ago but it isn't exactly the most solvent state in the union.
So your answer is "the state", which makes it a tax. That's fine - I just want to be clear that we're talking about taxing water to solve a water crisis, which you may understand may not play well in all spheres of the political world.
What is top down about letting the price of water settle at whatever level is necessary to reduce consumption to a manageable level?
That is not what he suggested. He suggested "setting" a price for water. Letting the price of water float is a different idea that requires that private people be allowed to own and trade water. This has to be done carefully, and California screwed it up when they tried it with electricity.
The truth is that water rights are a very complicated issue. Water falls on a combination of private and public land. You obviously can't go full-libertarian and have downstream users at the full mercy of upstream landowners, and things get even dicier when multiple governments (or even nations) are involved. I think a quasi-market based approach (that starts as a tax) is the right way to go, but there are a lot of very complicated issues to slog through. And market based approaches to rationing are rarely kind to the poor.