And then the rates for water go up because people are conserving.
Yep, it’s a catch-22.
Correct. Or the operating budget for the water dept. becomes subsidized by shifting funds from some other department to make things balance. Municipal utility services are usually supported by Enterprise Funds, which means their main source of revenue is the fee they charge. This works with certain operations in which the revenue is at a fairly constant and predictable level. Alter demand, and it gets out of whack.