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Almost 20 years later, in 1978, the New York State Department of Transportation agreed to spend $23 million to upgrade Conrail's southern-tier route, but stipulated a choice had to be made between the "ma in line" or Graham Line, while Middletown campaigned for abandonment of the main, commuter groups and other Communities who would be affected sought its retention. In the summer of 1981, the MTA decided to upgrade the Graham and abandon the mainline between Howells Jct. and Newburgh Jct. Howells Jct. is just outside Middletown between Derby and Boswer Roads, near Howells. Newburgh Jat. is outside of Harriman, and was so named as it originally was where one of Erie's two branches to Newburgh left the main line. With the MTA's decision, Middletown could proceed with a "Downtown Revitalization Program." According to critics of the switch, Middletown was unable to demonstrate precisely how removal of the railroad tracks would benefit its decaying downtown. By late March, 1982, the State DOT, Conrail, and the MTA had reviewed preliminary plans and estimates for new station sites, preparatory to actual purchase and construction. An agreement between Middletown, Conrail, and the DOT was negotiated whereby the City would take ownership of 12 acres of railroad land including roadbeds and freight yards between Hanford Street and Houston Avenue. Middletown would pay only transfer fees and related costs. In early April, 1982, city officials discussed the possibility of taking over the abandoned Erie station on Depot Street before the rest of the land. This was to perform badly needed maintenance to prevent further deterioration of the building, abandoned in 1981.
An important step toward abandonment of the main line occurred in August, 1982. Construction began on a 1,400 foot connection between the Graham Line and the line that led from East Main Street, through the old 0 & W yards, out Highland Avenue extension. This line connected with the Middletown & New Jersey RR and was needed so the shortline would not be stranded. Built by John Arborio, Inc., of Poughkeepsie, work was completed in mid-october. The spur to Pair Oaks was never reconnected, although the rails are still in place.
By early September, work had begun on the four new Graham Line stations which were $11,000 tempered glass shelters with heat and lights. The new Middletown station was located off Route 211 East near Route 17 on 13.1 acres of land purchased from Erie Land Improvement Co., a subsidiary of the former Erie Lackawanna Ry. Co. Facilities included parking for 350 cars and a 475 foot platform. As with the Salisbury Mills-Cornwall station, there was some controversy surrounding the name of this station. Town of Wallkill officials wanted it to be called something other than Middletown, but the station was, quite properly, named Middletown.
An eastbound Conrail freight train derailed near the South Street crossing in Goshen on the evening of April 3, 1983, blocking the mainline. The next day, Monday, commuters were