In the last month, 3 of my neighbors have removed their lawns in favor of rockscape or mulch. LADWP is offering $3 per square foot if you remove your lawn, so that is encouraging people.
http://www.bayfriendlycoalition.org/LYL-rebates.shtml
And the program most relevant to your current question:
http://www.valleywater.org/Programs/LandscapeRebateProgram.a...
In some cities, not watering your lawn may get you a fine too: http://www.latimes.com/opinion/editorials/la-ed-brown-lawns-...