This report describes the findings of a study conducted for the New Jersey State Library (NJSL) with two major objectives: (1) to determine how much it costs two State Contract Libraries (the Central Library of the Newark Public Library and the Bureau of Law and Reference of the New Jersey State Library) to provide supplemental question handling and interlibrary loan and photocopying services to libraries in New Jersey; and (2) to provide NJSL with recommendations regarding compensation strategies for the next 5 years. The first of nine chapters includes a description of the objectives and phases of the study, the format of the report, and background information. Chapter 2 focuses on the process used to establish working definitions of major services, i.e., reference services, interlibrary loan, and photocopying. Chapter 3 presents a model of question handling which was developed to clarify and define which activities needed to be costed. Chapter 4 describes the data gathering effort. Chapters 5 through 7 focus on the development and implementation of the cost finding model. Chapter 8 reports the results of the cost finding model, and the final chapter presents recommendations, including strategies for compensating the State Contract Libraries. Appendixes include a glossary of terms and copies of two forms developed to profile staff time and the characteristics of reference resources. (61 references) (GL)