To preface, I don't know anything about your specific area, but bike infrastructure is like car infra in that there are multiple classes of infrastructure for different purposes. What are commonly called bike trails tend to be off-road paths that go on meandering paths through nice parts of the city like parks and vineyards. That's not what my post is talking about.
People going to work typically take the most direct route there, which is usually the same road cars take rather than those trails. Thus you see people cycling on the same busy roads you're rushing to work on. That's an urban planning problem and one that I've spent lots of time trying to fix in my own community. In every case it's been held up by people who don't want to spend money on bikes and in one memorable case were worried about a traffic study that estimated an additional 30s worst case scenario for commute length increases.
As for the hill thing, cyclists are not obligated to have rear facing lights in any state I'm aware of, only forward facing. They need to have a rear retroreflector for visibility in most places. These come on all bikes by default and the only way to not have them is to intentionally remove them, which is uncommon. I assume they didn't since you didn't mention it, and I'm also going to assume the road doesn't have a bike lane since you mentioned a bike trail on some similar path instead. In that case, they're probably allowed to be there (though they should have forward facing lights and safety patches for their own sake).
Your responsibility as a driver is to drive at speed where you can identify and safely react to obstacles, including bikes. It sounds like that didn't happen here, but you're blaming someone else for the near miss.