When water is a limiting factor in alternatives of regional development, it is necessary to allocate that water for the maximum benefit to the region. When one portion of the water resources is surface flow and the other is ground water, optimal management requires the conjunctive use of both resources. Water resources administrative is often implemented by both regional and local authorities which are related in some hierarchical manner. Water resources management is a probabilistic endeavor in that hydrologic processes are stochastic in nature.Water in New Mexico's Rio Grande River basin is used conjunctively for most purposes; demands are satisfied by pumping from groundwater and releases from over ten reservoirs. The state allocates water rights to subregions and subregional agencies control the distribution of those allocations.A multilevel stochastic management model is developed for Rio Grande basin. Mass-balance ground and surface water stochastic models are developed for four hydrologically linked sub-basins. A multilevel management model is formulated such that the subbasins' local agencies operate their allocated water to their own best interest, while the regional authority modifies allocations to satisfy physical feasibility and legal constraints and improve upon overall regional benefits.