The staff of the Interstate Stream Commission is recommending New Mexico take advantage of federal funding to build a diversion and storage system along the Gila River.
The staff also recommended Friday that some of the funds be spent on municipal conservation projects and other efforts aimed at stretching the region's water supplies.
The commission must weigh the recommendation and make a final decision before Dec. 31, the deadline imposed by the Arizona Water Settlement Act.
Under the settlement, New Mexico is entitled to an average of 14,000 acre-feet of water a year, or about 4.5 billion gallons.
Up to $128 million in federal funding would be available if the state builds a diversion system, or about half that if the state pursues other water projects in the region.
Critics say a diversion project could end up costing five times more than the available federal funds.
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