I don't remember so much grass around the Palace of Fine Arts but I suppose it's watered, like everything else in the city, with good old Sierra snowmelt courtesy of the Hetch Hetchy reservoir in the Sierra and the aqueduct that brings it all the way to SF (well, not quite all the way but close enough). Being "green" is just a way to sell things, a way to create a generic "brand" that a certain market segment will respond to. And that market segment tends to have more disposable income which means that you can charge more for "green" and if you keep your costs in line you can make a bigger profit.
We had water "rationing" for the last 4 years I lived near Palo Alto. But what did that mean? Well, first they announced the amount of water you were going to be allotted at the current price was going to be implemented based on your usage history, which prompted a couple of my friends to immediately start watering their lawn 24/7 so they could boost their "base" and not have to pay a surcharge for excess usage. And that was the only "penalty" anyway....you would have to pay more for each water "unit" over your allotment. The funny thing was that if you could afford to own a home around there you sure weren't going to have a problem paying a little more for watering your lawn! In the meantime plans were going ahead for a new 10,000 house development in the East Bay. Water rationing? What water rationing? Sounded good in the media though.