The report evaluates how Minnesota plans, regulates, and finances residential services for mentally retarded persons. The first chapter reviews descriptive findings about the mentally retarded population in the state and notes that despite a decline in the number of state hospital residents, the total number of retarded persons in long-term care settings (state hospitals and the community) has steadily increased. Chapter 2 analyzes the planning and regulation, by state agencies, of community residential programs and notes areas of ineffectiveness. Chapter 3 covers the Department of Public Welfare's Rule 52, by which reimbursement rates for residential services are set. It is recommended that Rule 52 be revised, and that administrative problems be addressed as well. In the final chapter, policy aspects are described and recommendations are made for increased residential alternatives, and limited development of new state residential facilities. (CL)