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| - In the years leading to 1973, the freight railroad system of the U.S. was collapsing. Even after the government-funded Amtrak took over intercity passenger service in 1971, railroad companies continued to lose money due to extensive government regulations, competition from other transportation modes, and other factors. The Penn Central Railroad, formed in 1968 by the merger of the New York Central Railroad and Pennsylvania Railroad (and supplemented in 1969 by the New York, New Haven and Hartford Railroad), declared bankruptcy in 1970, less than three years into its existence. In 1972, Hurricane Agnes extensively damaged the already run-down Northeast railway network and threatened the solvency of even more railroads, including the somewhat more solvent Erie Lackawanna. In mid-1973, under
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| abstract
| - In the years leading to 1973, the freight railroad system of the U.S. was collapsing. Even after the government-funded Amtrak took over intercity passenger service in 1971, railroad companies continued to lose money due to extensive government regulations, competition from other transportation modes, and other factors. The Penn Central Railroad, formed in 1968 by the merger of the New York Central Railroad and Pennsylvania Railroad (and supplemented in 1969 by the New York, New Haven and Hartford Railroad), declared bankruptcy in 1970, less than three years into its existence. In 1972, Hurricane Agnes extensively damaged the already run-down Northeast railway network and threatened the solvency of even more railroads, including the somewhat more solvent Erie Lackawanna. In mid-1973, under Judge John P. Fullam, the bankrupt Penn Central threatened to end all operations by the end of the year if they did not receive government aid by October 1. At that time it would liquidate and cease operating completely, immediately threatening freight and passenger traffic in the United States. The Congress quickly came up with a bill to nationalize the bankrupt railroads. The Association of American Railroads, which opposed nationalization, submitted an alternate proposal for a government-funded private company. Fullam kept the Penn Central company operating into 1974, when, on January 2, after threatening a veto, President Nixon signed the Regional Rail Reorganization Act of 1973 into law. The 3R Act, as it was called, provided interim funding to the bankrupt railroads and defined a new Consolidated Rail Corporation under the AAR's plan. The 3R Act also formed the United States Railway Association, another government corporation, taking over the powers of the Interstate Commerce Commission with respect to allowing the bankrupt railroads to abandon unprofitable lines. The USRA was incorporated February 1, 1974, and Edward G. Jordan, an insurance executive from California, was named president on March 18 by Nixon. Arthur D. Lewis of Eastern Air Lines was appointed chairman April 30, and the rest of the board was named May 30 and sworn in July 11. Under the 3R Act, the USRA was to create a Final System Plan to decide which lines should be included in the new Consolidated Rail Corporation. Unlike most railroad consolidations, only the designated lines were to be taken over. Other lines would be sold to Amtrak, various state governments, transportation agencies, and solvent railroads. The few remaining lines were to remain with the old companies along with all previously abandoned lines, many stations, and all non-rail related properties, thus converting most of the old companies into solvent property holding companies. The plan was unveiled July 26, 1975, consisting of lines from Penn Central and six other companies—the Ann Arbor Railroad (bankrupt 1973), Erie Lackawanna Railway (1972), Lehigh Valley Railroad (1970), Reading Company (1971), Central Railroad of New Jersey (1967) and Lehigh and Hudson River Railway (1972). Controlled railroads and jointly owned railroads such as Pennsylvania-Reading Seashore Lines were also included (see list of railroads transferred to Conrail for a full list). It was approved by Congress on November 9, and on February 5, 1976 President Ford signed the Railroad Revitalization and Regulatory Reform Act of 1976, which included this Final System Plan, into law. The Erie Lackawanna had been formed in 1960 as a merger of the Erie Railroad and Delaware, Lackawanna and Western Railroad. It too was bankrupt, but was somewhat stronger financially than the others. It was ruled reorganizable under Chapter 77 on April 30, 1974 (as had the Boston and Maine Railroad), but on January 9, 1975, with no end to its losses in sight, its trustees reconsidered and asked for inclusion. The Final System Plan assigned a major section of the EL, from northern New Jersey west to northeast Ohio, to be sold to the Chessie System, which would help spur competition in Conrail's territory. Chessie however could not reach an agreement with EL labor unions, and in February 1976 announced that it would not be buying the EL section. The USRA hurriedly assigned large amounts of trackage rights to the Delaware and Hudson Railway, allowing it to compete in the Philadelphia, Pennsylvania and Washington, DC markets. On the other hand, the State of Michigan decided to keep the full Ann Arbor Railroad, of which Conrail would only run the southernmost portion, operational. Michigan bought it and the whole line was operated by Conrail for several years until it was sold to a short line.
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