The debate over whether to enact a tax and expenditure limit (TEL) in California has been one of the key policy battles of Arnold Schwarzenegger's governorship. During the recall campaign, Schwarzenegger voiced his support for a limit as a cold turkey cure for the legislature's “addiction” to spending. Soon after his election, he threatened to propose an initiative capping total expenditures, though he eventually compromised and worked with Democrats to enact a tighter balanced-budget requirement. Two years later, he followed through on his threat and put a spending limit on the ballot, only to see it lose badly when voters blanched at the school funding cuts that it might deliver. Rarely mentioned in this debate over whether California needs a TEL, however, is the fact that it already has one.

Proposition 4, the “Gann limit,” was passed in 1979 as part of the state's famed tax revolt and established a formula limiting the growth of expenditures of tax dollars. Although its formula has been modified, the Gann limit is still in effect, and Poterba and Rueben's cross-state analysis of TELs still categorizes it as “binding.” Yet California's fiscal history – along with the current debate over a spending limit – suggests that the Gann limit has not constrained the growth of state government. Since its passage, total spending in the state has continued to exceed the national average by about the same margin.