Step two is to significantly beef up our reservoir system. We should be able to capture way more of our winter rainfall than we currently do. That'll be a pretty big help to farms and cities further south (i.e. in the more arid half of California).
Step three is to stop pussyfooting around building desalination plants. If Israel can go from being constantly on the verge of drought to having a giant water surplus, then there's no reason we can't do the same with California (especially since we have way more room to build 'em :) ). California's adjacent to the single largest body of water in the world; it's ridiculous that we ain't taking advantage of that.