I think the idea is to attempt to dissuade them from passing the law in the first place. In a war, it's better if you can sap the enemy's will to fight rather than actually engaging in battle. Gathering all those signatures and then electioneering would deplete resources that could be better employed elsewhere.
On the other hand, I could make an argument for wanting it on the March ballot. Ward Connerly's Racial Privacy Initiative will be on that one as well, and those two issues would bring out a lot of conservatives, who'd also vote for the Republicans in the various races.
So, if the Dems are thwarted and don't even pass the measure, that's fine, and if it ends up on the ballot, I guess that's fine too.
It wouldn't be the March 2004 primary ballot. Gray Davis would have to call a special election sometime this year. Well, technically he wouldn't have to call a special election. But politically it would be impossible to argue that the billions of dollars from a Car Tax hike were desperately needed to help solve this year's enormous budget deficit, but at the same time it wasn't worth spending a few million dollars on a special election so that those billions in tax revenues would actually be available this year.
That's another reason that the Democrats will be terrified by McClintock's threat of a referendum. If Davis calls a special election, the Racial Privacy Initiative will necessarily also be on the ballot. That means both the Car Tax hike would go down in flames and Connerly's initiative would pass handily. Whereas the Democrats are hoping that the Racial Privacy Initiative can be defeated in March 2004, given that large numbers of Democrats will be attracted to the polls by a heavily-contested Democratic Presidential Primary while Republicans won't care as much about their uncontested Primary race.