In general, government at all level should be encouraging a mode shift away from cars and toward trains, using legacy lines for regional service outside urban areas. Here is a canonical example of such a proposal, unfortunately completely unofficial, in Medford, Oregon. A key point is that transit needs to provide a competitive trip time, and connect people to where they want to go, or else there’s no point in running it.
Sometimes, it’s impossible given present infrastructure. One example of this, routinely mooted on California High-Speed Rail Blog, is a system connecting to Gilroy and feeding high-speed rail. For the purposes of this discussion, let’s assume that the current FRA regulations and US rail practices have been completely gutted and replaced with Swiss or Japanese practice, and, more speculatively, that the legacy line can be made passenger-primary, despite Union Pacific ownership. The system would connect Gilroy, Santa Cruz, Salinas, and Monterey, using a now-abandoned right-of-way to get to downtown Monterey and legacy lines elsewhere.
The result can be seen on this map. There would be timed transfers at Castroville and Watsonville (running one-seat rides everywhere at acceptable frequency would require too many trains), and several additional intermediate stops, such as Marina, Seaside, Capitola, and Aromas. In terms of pure railroad operations, it could be a well-run system. Unfortunately, it could not be a successful one: the largest and densest city on the line, Salinas, is connected to the others in a very roundabout way. Salinas-Gilroy is 60 kilometers by rail and only 45 by road. Frequent curves would make it impossible to maintain a high average speed. Even a 55-minute trip time, allowing two trainsets to provide hourly service, would be ambitious, though possible with a wide stop spacing and good rolling stock; in contrast, driving takes 37 minutes according to Google Maps.
Monterey-Gilroy and Santa Cruz-Gilroy would be a little more competitive – they’re 50 and 54 minutes by car respectively. However, the markets are much smaller, especially in the case of Santa Cruz, where to get to any regional destination other than Gilroy, it’s faster to drive to San Jose. In addition, Santa Cruz-Gilroy is the hardest pair to get on a reliable clockface schedule: it’s 65 km, and the segment west of Watsonville is 34 with many curves, some of radius going down to about 220 meters, restricting speed even under optimistic performance assumptions to 75 km/h.
Since the congestion level in this part of California is not very high, cars could always beat the train, and for many trips so could buses. Therefore normal origin-and-destination travel would not produce much ridership on such a system. The worse trip time would be tolerable to some high-speed rail travelers if the transfer to high-speed rail were well-configured; however, high-speed travel alone does not generate enough ridership to justify an entirely new rail system, especially at an outlying station such as Gilroy. It would be the high-speed rail equivalent of an airport express.
There occasionally arise such cases, of lines that look good in principle but can’t be made competitive in practice. That is one example. A few more, not all seriously proposed by transit proponents: many international high-speed rail links in general, and some in particular, for example Minneapolis-Winnipeg (it would dominate the market, but the market is so small it’s not worth it). The only thing that can be done is spend scarce transit funding elsewhere. There are enough regional and intercity lines that could work well and no shortage of local transit supporters, some with political clout, who want them. Urban lines, which routinely get the short end of the stick in California in favor of low-performing outward extensions, would clamor for some of the money required to get a Santa Cruz-Monterey-Salinas-Gilroy system up to acceptable performance standards.