John Wesley Powell recommended that the West be organized with watershed districts being the basic political unit. This certainly would have been far more rational, and with vastly greater potential for the sane development of the West vis its water supplies, than the idiotic way the states actually were delineated, which has led only to insanity, stupidity, and corruption.

Right now in New Jersey there's an attempt, with the Highlands Act, to safeguard North Jersey's beleaguered water supplies by organizing the region into water districts and limiting development according to available water supplies (quantity and quality).
Unfortunately, while the basic idea is good, the newly adopted Regional Master Plan promises to fumble the execution, allowing all sorts of loopholes, falling short in many way.

The same old story...

I'd say that the solution would be LESS, not more, federal involvement in water policy. As you point out, the natural management unit is a watershed -- not a State border -- and locals can "manage" their watershed with more sensitivity than any federal agency or politician.

In fact, I'd go further and say that federal interference (through regulation AND funding) has done more to paralyze and thwart watershed management than any other influence.

It's my experience that the biggest blunders in water management (in the West, at least) have been orchestrated by federal bodies (USACE, Reclamation, Interior). Without their malevolent influence, we'd not only have fewer disasters in our past but be able to do more RIGHT NOW. (That's the reason for all that "disaster as usual" testimony you saw.)

... are all antiquated and broken. The watershed model does make lots of sense.

Reform at the national level is needed in order to balance a tendency at some local levels to have a "race to the bottom" in order to attract seemingly desired industrial activities which, if not carefully overseen can end up trashing a place and leaving it good for very little.

The amazing thing about rivers is every time you look at one, it's different water passing by.  The thing that should be constant is the care for the watershed-- in essence, all the land that drains to it, as well as the riparian buffers and other critical elements that affect the health and quality and quantity/rate of the water flowing by.  The damage done by impervious surfaces (rooftops and pavement), wetlands destruction and other seemingly irreversible changes, is killing our rivers and streams.  Not to mention the threats from invasive species which will only get worse when the system is stressed by anthropogenic global warming.

Moving toward sustainability with hopefulness, one revolution at a time.