This study measures the performance of Indiana state institutions against current hospital library standards, estimates the cost of bringing library service up to minimum standards, proposes alternate administrative patterns for institutional library services in Indiana, recommends priorities, and proposes a plan for phasing-in the improvement of library service. Recommendations are made on special library services to the mentally retarded. Additional recommendations suggest that the State Library establish a demonstration model institution library in one institution, which provides quality service meeting national standards, and evaluative procedures to be set up at the beginning of the project to measure the results of the library service in terms of the purpose of the institution. At the same time, the State Library should aid remaining institution libraries by an active in-service training program addressed to institution educational directors as well as to librarians. The State Library should immediately undertake the acquisition, cataloging and processing of all materials ordered for all state institution libraries, and establish a central audio-visual collection for the use of all state institutions. (MF)