OREANDA-NEWS. Recent political developments in City of Rome could damage the municipal government's ability to implement the city's 2015 budget and the remainder of its 2014-2016 recovery plan, Fitch Ratings says. The budget and recovery plan are important elements in restoring the operating surplus to fully cover recurrent spending including debt-servicing requirements.

Investigations into alleged corruption among members of Rome's business community and public officials have increased pressure for a possible dissolution of the municipal council and fresh elections. Rome's Mayor, Ignazio Marino (who is not under investigation) said he intends to complete his term of office, which runs to 2018.

Significant political disruption could reduce the administration's focus on, or its ability to implement, the EUR550m recovery plan. This plan, initiated by the national government, involves raising property, waste collection and tourist taxes, cost-cutting measures such as only partial replacement of retirees and rationalisation of transport costs, and partly funding capital spending via asset sales. The recovery plan was formulated to improve the current margin in the face of rigid costs and falling subsidies from the national government (although the latter has contributed EUR100m to fund some of the City's costs over the period of implementation).

We think full implementation of the recovery plan could turn Rome's deficit into a small surplus of about 2% over the medium term. Balancing the operating budget is required by Italian law, but may be missed without full implementation, as the scope for alternative measures is limited. Municipal taxes on property and personal income are already at their upper legal limit, economic weakness may hit revenues, and extra costs may arise from the Vatican Jubilee Year, starting in December, and a possible bid to host the 2024 Olympic Games.

We affirmed the City of Rome's 'BBB'/Negative rating in March. The affirmation reflected, among other factors, low public debt of nearly EUR1.5bn (about 30% of revenue) and the prospect of ad hoc financial support from the national government (shown for example in the transfer of EUR6bn of Rome's pre-2008 liabilities to the Gestione Commissariale del Comune di Roma). The Negative Outlook reflects policy uncertainties and the risk that the recovery plan fails to restore the operating surplus.