The Leonine city OTL is an appendix of Vatican city, with all the embassies, several institutions, several cardinals taking residence there. I think otl Pius XI didn't want to have more land than needed, and refused the offer of the Leonine city.I see then! Well, what kind of people would live within the Leonine City then, as average people? What would that mean for security of the Leonine City? Are we looking at an expansion for that as well?
But there is another interesting question: what happens to Italian politics, without both world wars and the rise of fascism? I think the era of the Liberal party was going to end anyway after the introduction of universal suffrage, with mass parties like the PSI (socialist) and the PPI (popular democratic christian) taking the lead.