The PENN CENTRAL TRANSPORTATION CO. was created in 1968 by merging the NEW YORK CENTRAL and PENNSYLVANIA RAILROADS, the nation's 2 largest trunklines, extending from the Atlantic to Chicago and St. Louis. Cleveland was a strategically located terminal on both lines, making Penn Central the most substantial of the railroads serving the area. The consolidation of the 2 financially troubled railroads formed the world's largest privately owned transportation company. However, both railroads had poor records of equipment and labor utilization, histories of shipper complaints, and increasing signs of poor management that could not be cured by the merger. Penn Central's bankruptcy 2 years later demonstrated that nothing short of complete regulation or nationalization could save some railroads from their own mistakes. The company's collapse was one factor directly responsible for the creation of CONRAIL in 1976, which took over most of Penn Central's significant assets.
When the Penn Central failed, the Cuyahoga County auditor estimated that the taxes owed to Cleveland and surrounding suburbs was in excess of $32 million, most of which was payable to various school systems. Following a federal court decision allowing Penn Central to pay a percentage of the debt owed, its officials offered to pay 50% of the back taxes owed on its properties in Cleveland. Disapproval by Cleveland city officials prompted Penn Central to increase the offer to 60%, or approximately $18 million. In 1978 the company reorganized itself as the Penn Central Corp., a marketing and operating entity in the areas of energy, recreation, and real estate.