The rating is based on the City of Milan's strong, diversified economic base, expected improved operating balances, and expected low deficits before debt retirement over the next three years. Milan's high potential revenue flexibility and valuable assets are also positive rating factors. The rating is constrained by the city's heavy debt burden. Milan is Italy's second-largest city, with 1.2 million inhabitants. It is the leading manufacturing and financial center in the country, contributing more than 10% of national GDP, although accounting for only 2% of the population. Its wealth indicators are substantially above the national and European averages. In 2002, Milan's operating margin represented 4% of operating revenues, which is low for an 'AA' rated entity with a hefty debt
