Victoria, BC

I think that makes sense from a purely financial view, but that it's not viable overall because it won't sufficiently incentivize transit.

Buses are ultimately stuck in car traffic, because it's politically difficult to put dedicated bus lanes everywhere given that the reason buses get chosen is usually to minimize the cost and the impact to cars. Given that transit is inherently less flexible that a car, and that this cuts out yet another potential advantage over cars... this kinda cements transit as the "inferior option for poor people" like it's already viewed today.

I really think you need to overinvest in transit with something like LRT, both because it's high-capacity for the long-term future and because it makes people feel like transit is a comfortable, efficient and classy way to travel, thereby increasing ridership. My hometown of Kitchener-Waterloo did it recently and quite successfully, at a similar population and size to Victoria.

As far as "the density isn't there yet", there's also the angle that building high-capacity transit will create it there by skyrocketing the property values near it.

You're right. However, I am unsure why rail requires being held to some standard of economic viability. Roads don't generate revenue; they're bottomless money pits we throw cash into, as well as societal harm in the form of emissions, accidents, drunk driving, and more. They simply don't make "economic sense". Why must rail?

I don't subscribe to neoliberal rationalizations about every single policy decision. Sometimes (often, even) the best policy decisions cannot satisfy economic rationalization.