The rating is based on the City of Milan's strong, diversified economic base; reasonable financial performance, with manageable deficits before debt repayment; and increased expenditure flexibility resulting from the recent refinancing of expensive loans. The rating also reflects the city's limited revenue flexibility and somewhat heavy debt burden. This is to some extent offset, however, by Milan's extensive assets, which could provide it with significant resources if necessary. Despite a rise in the operating surplus in 1999--to 8% of operating revenues from 6% in 1998--Milan recorded a 15% deficit before debt repayment, compared with a surplus of 7% of total revenues in 1998. The deficit stemmed from an active investment program that was partially financed with 1998's financial reserves rather
