In fall 1978, Paul Gann, who worked with Howard Jarvis to pass California's Proposition 13 in June 1978, sought to qualify an intitiative placing a constitutional limit on state and local government expenditures. This initiative qualified and was approved by voters in November 1979 as Proposition 4. Gann's solicitation set the limitation's base year at 1978-79. Annual increases in the appropriation limit would be no greater than changes in the U.S. Consumer Price Index plus population. The initiative petition's signers expected future per capita government expenditures to be equal in real dollars to the 1978-79 level, since the annual adjustment would reflect the change in the cost-of-living. Inadequate attention was given the material that Gann circulated. The initiative restricted an annual increase in the Gann appropriation limit that has failed to conform to the intent of Proposition 13. Because the increase in per capita personal income was lower than the percentage increase in the consumer price index for three years (1980-81, 1981-82, and 1983-84), the annual growth in the appropriation limit was also lower than the promised cost-of-living and population increase. The resultant revenue deficiency and related problems are discussed at length in this paper. Unless voters approve a constitutional amendment to change the Gann formula, the situation of state and local government agencies (including school districts) will worsen in the future--especially if the economy experiences another period of stagflation. Governor Deukmajian's establishment of $1 billion reserve in the 1987-88 budget only compounds the problem, since surplus revenues inside the appropriations limit must be returned to taxpayers. This system shortchanges schools and community colleges, as may be seen from supportive statistics. Included are two tables and the "spirit of 13" campaign flyer. (MLH)