The rating on the City of Milan, Italy's second-largest city, reflects its stable operating balance, good liquidity position, strong revenue flexibility, and commitment to self-financing most of its capital program. The rating is also supported by Milan's wealth indicators, which stand well above the European average, and its diversified economic base as Italy's leading manufacturing and financial center. The rating also takes into account, however, the city's heavy debt burden and the constraints on local and regional government (LRG) autonomy imposed by a framework of intergovernmental relations that permits unilateral actions by the Republic of Italy (AA-/Negative/A-1+). Milan's operating margin stabilized at more than 5% of operating revenues in 2004, thanks to management's effective outsourcing policy and strong focus on
