Referendum processes are no panacea --- look at the mess they've created in California. Among other problems, there are referenda that limit tax increases, which have obvious appeal, and referenda mandating spending on various good causes, which also have obvious appeal. The problem is that at this point, so much state revenue is committed to mandates that in crunch times, everything else gets slashed to the bone, whether it makes sense to do that or not.

See http://www.nationalaffairs.com/publications/detail/who-kille... for more, particularly the parts on propositions 13 (limiting tax increases) and 98 and 111 (mandating spending)...