When Philadelphia signed a groundbreaking swap agreement 1990, the city hoped to save half a million dollars a year in debt service over an ordinary bond issue. Instead. little of the savings have materialized, and the city is out the $1.5 million in fees it paid Merrill Lynch & Co. for the swap.

But was the swap deal, which accompanied a $148 million bond issue, fundamentally flawed? Or could any financing arrangement have survived the city's unprecedented fiscal woes and brush with bankruptcy?

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