Answer :
"B. Citizens vote
directly on a proposed law in their city or state" is correct. Referendums are always about a specific issue that is being put to eh voters directly.
B. Citizens vote directly on a proposed law in their city or state.
A referendum is a measure that is "referred" to the people, more broadly, it refers to is a direct vote in which citizens vote on a particular proposal, law or bill of their city, state or country. It often offers the electorate a choice of accepting or rejecting a proposal, but it also can provide multiple options.
In the United States, referendums are on local and state level over issues concerning their area such as new zoning ordinances, new taxes for schools, and new limits on spending.