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Preliminary Fiscal Year 2002–2003 Budget

Posted: 30 March 2002


Preliminary Budget–Fiscal Year 2002-2003
(July 1, 2002 to June 30, 2003)

CONTENTS

I. Introduction
II. Budget Issues for FY2002-2003
III. Background
IV. Budget Process for FY2002-2003
V. Budget Priorities for FY2002-2003
VI. What is Excluded from this Preliminary Budget
VII. Building the Reserves
VIII. Comments on 2001-2002 Projections
IX. Preliminary Budget Schedule and Accompanying Notes
X. Staffing for FY2002-2003

I. Introduction

This document has been prepared by the President to provide background materials for discussion of ICANN's 2002-2003 budget. An earlier version was briefly reviewed with the ICANN Finance Committee and the Budget Advisory Group at their joint meeting on March 12, 2002 in Accra, Ghana, but the document was not available sufficiently far in advance of that meeting to permit a full and meaningful discussion. Nevertheless, this version does reflect some, but not all, suggestions of those two bodies at that meeting. It is now being posted for public comment. To comment on this document, please e-mail to budget-comments@icann.org.

A final Proposed Budget, informed by such public comment and by further advice from the Finance Committee, the Budget Advisory Group, and the Board, will be posted in accordance with ICANN Bylaws on or before May 15, 2002 in advance of the Public Forum in Bucharest, Romania on June 25, 2002. The Board of Directors will act to approve the 2002-2003 Budget at its meeting on June 28, 2002 (see "Budget Process for FY2002-2003").

All financial figures in this document are in US$.

II. Budget Issues for FY2002-2003

This Preliminary Budget is an aggressive budget that proposes significant increases in staff and expenditures reflecting some of the issues and precepts reflected in the recent document posted by the President, "ICANN: The Case for Reform". Although it is heavily influenced by the concerns expressed in that document, this Preliminary Budget is nevertheless cast within the current ICANN structural framework. As such, it does not include funding for some of the concepts of that document, such as an Ombudsman function or the proposed Manager of Public Participation, or for any funding of the root name server operators should that prove desirable. Neither does it broaden sources of funding from current sources (as is proposed in that document), but places the entire burden of increased funding on those current sources.

Athough this Preliminary Budget does not fully address the concerns in the President's recent document concerning reform, it does reflect management's view of what it takes to run ICANN more effectively and stably so that work currently assigned by the ICANN Board of Directors and by contractual oblications can be completed in a thorough and timely manner, and so that services for which ICANN is responsible can be effectively and efficiently rendered. Over the years ICANN's staff has not increased commensurate with increases in workload, and ICANN has been considerably understaffed since its inception. As workload has "piled on", this implies that work is done in a less timely and thorough manner and that mistakes occur. That may be all very well for "start-up" mode, but the current level of intensity cannot continue.

There is a clear need to re-assess ICANN's mission and goals and to align the scope of ICANN's to be commensurate with funding available. Either the scope of ICANN's activities must be reduced or funding must be found to provide for adequate resources to support the current workload.

Although a reduction or adjustment of the scope of ICANN's responsibilities may emerge from the ongoing discussion regarding ICANN reform, pending completion of that discussion it is management's responsibility to ensure that staffing and funding levels are reasonably commensurate with assigned workload. This budget therefore assumes that the present workload and scope of ICANN's activities continues as is. The current dialog regarding the mission of ICANN is a very healthy first step towards re-assessing this situation (see "Towards a Statement of the ICANN Mission"). This Preliminary Budget envisages a significant 28% increase in expenditures over the 2001-2002 budget. This is driven by the need to:

  • Bring funding more into balance with current assigned responsibilities.

  • Respond to specific requests from segments of the community including (a) the request by the Names Council for $170,000 to fund a secretariat, and (b) the inclusion of $200,000 to help jumpstart the formation of "At Large" organizations (although it is possible such funding may be secured through external grants). Whether the overall community wishes to support the funding of these items remains to be determined.

  • Continue activities launched over the past year which were not included in last year's budget, such as the IDN Committee (or, more precisely, work that may arise from recommendations of that Committee once the work of the Committee itself is completed1) and the Security Committee.

  • Recognize inflation and known increases in costs (such as, for example, a 250% increase in insurance costs that has been experienced this past year).

  • Build reserves as discussed below.

There are, however, many items that are not provided for in this Preliminary Budget; see "What is Excluded from this Preliminary Budget".

One critical factor driving this Preliminary Budget is the continuing need to build ICANN's financial reserves to acceptable levels. Without such reserves, ICANN remains in a financially precarious position. This cannot continue. One key reason behind ICANN's inability to accumulate reserves is that contributions from ccTLDs – while generously donated in the absence of any agreements between ICANN and most of the ccTLDs – fall far short of what has been budgeted under the formula followed for splitting financial responsibility between gTLDs and ccTLDs. This results in actual revenues falling far short of budgeted revenues, and as a consequence budgeted contributions to the reserves do not materialize. In the past, this built-in discrepancy has not been resolved. We can no longer afford to avoid this problem.

This Preliminary Budget, therefore, plans for much higher contributions to the reserves than has been the case in the past, providing a hedge against this budget shortfall in ccTLD contributions. One consequence is that this strategy drives gTLD commitments to a much higher level than would be the case if the ccTLDs could find a way to contribute in aggregate up to the full amount budgeted.

The need for a larger budgeted reserve is further underscored by the projected financial performance for the current fiscal year, 2001-2002. Although the projected surplus or contribution to reserves is now projected to be $389,000, this surplus could readily turn into a significant loss if a shortfall in ccTLD contributions comparable to or greater than historic levels is experienced, and if RIR agreements are not concluded so that contributions are received from that source (see "Comments on 2001-2002 Projections" for more details).

Given the incomplete (indeed, formative) stage of the ongoing discussions to define more specifically ICANN's mission, this Preliminary Budget for FY2002-2003 necessarily is guided by the existing, more general, statements of ICANN's mission, along with specific resolutions of the Board. Thus, the fundamental guide in assessing what ICANN responsibilities should be covered in the Preliminary Budget is the summary of ICANN's purposes in ICANN's Articles of Incorporation. The key question is the extent to which this Preliminary Budget properly supports these stated responsibilities:

"…..promoting the global public interest in the operational stability of the Internet by (i) coordinating the assignment of Internet technical parameters as need to maintain universal connectivity on the Internet; (ii) performing and overseeing functions related to the coordination of the Internet Protocol ("IP") address space; (iii) performing and overseeing functions related to the coordination of the Internet domain name system ("DNS"), including the development of policies for determining the circumstances under which new top-level domains are added to the DNS root system; (iv) overseeing operation of the authoritative Internet root server system; and (v) engaging in any other related lawful activity in furtherance of items (i) through (iv)."

III. Background

Fiscal Year 2002-2003 is the fourth full budget year for the corporation, and is based on significant operating experience obtained over the previous three years.

In the fall of 1999, the ICANN Board adopted the recommendations of its Task Force on Funding (TFF) which included a number of provisions relating to the annual budget cycle. These recommendations were the basis of the detailed annual budget process that has since been followed and, with minor procedural revisions, are continued in the 2002-2003 budget cycle. The TFF report is available at http://www.icann.org/committees/tff/tff.htm. Although this is framed as a draft report, the Board resolution adopting the recommendations of the TFF accepted it as a final report.

In December, 2000, the ICANN Board appointed a Finance Committee. Its charter provides that the committee is "responsible for consulting with the President on the annual budget process of the corporation; for reviewing and making recommendations on the annual budget submitted by the President; and for developing and recommending long range financial objectives for the corporation."

The membership of the Finance Committee for 2001-2002 is Directors Linda Wilson (chair), Jonathan Cohen, Ivan Moura Campos, and Helmut Schink. Additional information about the Finance Committee is posted at http://www.icann.org/committees/finance.

In December 2001, ICANN's President appointed the members of what is now termed the Budget Advisory Group for FY2002-2003 in accordance with the recommendations of the TFF Report and based on nominations from Domain Name and Address Registries and Registrars. Although nominated by the various constituencies, the Budget Advisory Group's advice to the President is based on the perceptions of the individual members and may or may not be representative of the constituency as a whole.

The FY2002-2003 members of the Budget Advisory Group and their affiliations are:

  • Sabine Dolderer [.de - ccTLD Registries]
  • Hartmut Glaser [.br - ccTLD Registries]
  • Bernard Turcotte [.ca - ccTLD Registries]
  • Elana Broitman [register.com - Accredited Registrars]
  • Bryan Evans [InterAccess - Accredited Registrars]
  • Rob Hall [Momentus - Accredited Registrars]
  • Sloan Gaon [registry.pro - gTLD Registries]
  • Chuck Gomes [VeriSign - gTLD Registries]
  • Steve Juarez [MusDOMA - gTLD Registries]
  • Axel Pawlik [RIPE-NCC - Address Registries]
  • Robert Stratton [ARIN - Address Registries]
  • Paul Wilson [APNIC - Address Registries]

Budget Process for FY2002-2003

The ICANN Bylaws require that the President submit a proposed budget to the Board of Directors at least forty-five days in advance of the beginning of the fiscal year, or approximately May 15. For 2002-2003, the Board expects to act on the proposed budget at its meeting on June 28, 2002 in Bucharest, Romania.

The ICANN annual budget-development cycle follows three general phases. The first involves review of the financial results for the first six months of the current fiscal year, and the development of an updated forecast of actual results for the entire fiscal year. This cycle is nominally completed in January. Posting of official six-month figures, however, has been delayed this year because of the need to reconcile with the final audited figures for 2001-2002. For reasons described at the beginning of the corrected Audited Financial Report for Fiscal Year Ending 30 June 2001, the final audit was not complete until January. Management estimates of the six-month results and of projections for the full year have, however, been regularly shared with the Finance Committee and (at a combined meeting of the Finance Committee and the Budget Advisory Group in Accra, Ghana on March 12, 2002) with the Budget Advisory Group. The 6 month figures have now been posted, and can be reconciled with the information presented in this document, when adjusted for differences in format and different modes of accounting for deferred revenues2)

As an extra step in the process this year, the President and the Finance Committee solicited input from ICANN's Supporting Organizations and constituent units in the Open Forum at the meeting in Montevideo in September 2001, and in a widely distributed written solicitation in December 2001. Although response was very limited, consideration has been given to what was received.

The second phase of the budget-development cycle includes the preparation of a Preliminary Budget for the next fiscal year based on the updated forecast for the current year, plus other known variables affecting the next year's budget. The Preliminary Budget Document then becomes the basis for general review and discussion at the first quarterly ICANN meeting of the calendar year. A summary of this document was presented at the Open Forum that was held in Accra, Ghana on March 13, 2002. The full Preliminary Budget, however, was not available at that time, and only a first draft was shared with the Finance Committee and the Budget Advisory Group.

The third phase includes preparation of the Proposed Budget for the next fiscal year, based on review of the Preliminary Budget. The Proposed Budget, after internal review and development by ICANN management, the Budget Advisory Group, and the Finance Committee, is posted for public comment at least three weeks before the second quarterly meeting, but no later than 45 days before the beginning of the next fiscal year. In the case of the Proposed Budget for 2002-2003, this will occur on or before May 15, 2002.

The Proposed Budget, modified as appropriate from analysis of comments received, is presented to the Board for adoption at its second quarterly meeting. This year, that will occur on June 28, 2002 in Bucharest, Romania.

The calendar of currently scheduled budget related meetings and teleconferences for the FY2002-2003 budget is as follows. The Finance Committee also meets as needed during the budget process in addition to the meetings listed below.

September 2001 Finance Committee Meeting, Open Forum Solicitation of Comments on Budget Planning for 2002-2003, Montevideo [Completed]
November 2001 Appointment of Budget Advisory Group [Completed]
November 2001 Joint Finance Committee & Budget Advisory Group Meeting, Marina del Rey [Completed]
December 2001 Written solicitation of priority suggestions from Supporting Organizations, Advisory Committees, constituencies and other ICANN constituent organizations [Completed]
November 2001 Initial Board discussion [Completed]
December 2001 Preliminary Board discussion of priorities (teleconference) [Completed]
January 10, 2002 Receipt of Supporting Organizations, Advisory Committees, constituencies and other ICANN constituent organizations' views on priorities [Completed]
February 2002 Review of priorities with Finance Committee [Completed]
March 2002 Joint Finance Committee & Budget Advisory Group Meeting, Accra [Completed]
March 2002 Public Forum discussion, Accra [Completed]
March 2002 Posting of Preliminary Budget [This document]
Mid-May 2002 Joint Teleconference of Budget Advisory Group with Finance Committee
May 15, 2002 Posting of proposed Final Budget for community feedback and Board consideration
Early June, 2002 Joint Teleconference of Budget Advisory Group with Finance Committee
June 27, 2002 Public Forum
June 28, 2002 Board decision on Final Budget

V. Budget Priorities for FY2002-2003

This Preliminary Budget assumes an ICANN as currently structured. It does not include the effects of any possible reforms or restructuring that are currently under consideration. Nor does it provide for funding any transition, since what is necessary is unknown at this time.

Neither does it provide for any expansion or contraction of mission as currently perceived; that is, it is consistent with policy or mission scope decisions already made by the Board (except for the Names Council request for support for DNSO Secretariat funding). As already noted, re-examination of the ICANN mission could affect this budget.

This Preliminary Budget also does not anticipate any reduction in expenditures that may result from growth in the use of higher-level naming systems that may relieve or replace pressure on the DNS to provide solutions to problems for which it was not originally designed. Any shift from the DNS to these higher-level naming systems could conceptually provide relief to ICANN because they are outside of ICANN's scope. However, it is premature to make any assumptions at this time.

The basic philosophy driving this Preliminary Budget was discussed earlier in this document (see " Budget Issues for FY2002-2003"). From a workload perspective, this Preliminary Budget builds on the ongoing and highlight priorities as follows (see also " Towards a Staement of the ICANN Mission"):

Ongoing Priorities:

  • Provide timely and responsive support to the policy-making activities of the Board and Supporting Organizations, other advisory bodies, and Board Committees, including policy and legal analysis, drafting and implementation, preparation of legal agreements and other materials, etc.

  • Ensure responsive services to meet operational commitments of service programs, including IANA services to support address and name registries, assignment of protocol parameters, registrar accreditation, etc.

  • Implement agreements with constituent bodies to formalize the delegation of ICANN responsibilities and to create an institutionalized framework of agreements.

  • Conduct an active education and outreach program to further openness and transparency and to support public participation in ICANN policy-making activities, including public meetings, public forums, electronic and hardcopy publications, support of an accessible website, etc.

  • Ensure efficient and effective planning of three ICANN meetings per year.

  • Operate robust and secure technical services to support operation of the L-root nameserver, registries operated by ICANN, the InterNIC, and internal operations.

  • Fulfill other requirements of the Memorandum of Understanding with the United States Government as prerequisites to the full internationalization of ICANN.

  • Actively monitor and ensure compliance with all agreements entered into by ICANN.

  • Execute the general management and administrative responsibilities of the corporation in an efficient and effective manner.

Highlight Priorities:

Specific priorities for 2002-2003 that fit within the above framework include (subject to adequate staffing levels):

  • Continue to improve IANA operations and technical services.

  • Provide support to the ICANN Security and IDN Committees, and implement recommendations arising from the work of those Committees as approved by the Board.

  • Support work under the Cooperative Research and Development Agreement on study of the performance and security needs for the root-nameserver system and development and implementation of an enhanced architecture for that system, including preparation of plans and reports.

  • Improve the security and robustness of ICANN's technical operations.

  • Coordinate evaluation of the present round of new gTLDs and, subject to Board decisions, provide for a further round of new gTLDs (but see the list of excluded items below).

  • Improve the effectiveness and timeliness of ICANN's mechanisms for openness and transparency, including reorganization of the ICANN website, mechanisms for public input and comment, and other communications.

  • Provide support to nurture self-forming At Large activities and groups.

  • Provide funding for staff support for a DNSO Secretariat to the extent the Names Council request for the funding of such support is endorsed by the community.

  • Improve ICANN's capability for monitoring agreements and ensuring compliance.

  • To the extent possible, continue to negotiate with ccTLDs to enter into agreements where feasible.

  • Enter into agreements with root name server operators to the extent feasible.

  • Strengthen ICANN as an operating organization, including normalization of financial support, staffing, and administrative operations.

VI. What is Excluded from this Preliminary Budget

Although this budget represents an expansion from previous years, there are many exclusions. For example, it does not provide for:

  • Funding for any unforeseen increase in litigation that may be associated with the increased levels of ICANN's activities.

  • Any one-time costs that may be incurred with any possible reform and restructuring.

  • The costs of launching any new gTLDs that may be approved by the Board (it is assumed that this is likely to be a self-funding activity), although it does provide for a staff member to oversee a planning process associated with evaluating the recent round of new gTLDs and planning for future rounds. However it does not provide for any extensive evaluation beyond what can be funded with the balance of $323,000 left over at the end of the 2001-2002 fiscal year from the new gTLD funds, let alone provide for a hedge against potential litigation.

  • Contracting for services to provide support for the technical monitoring support of the root name servers under the direction of the RSSAC, since there has been no formal recommendation by the RSSAC.

  • Support for any Security Committee recommendations, pursuant to its charter "to undertake any audit activity to assess the current status of DNS and address allocation security in relation to identified risks and threats". The budgetary implications of this cannot be assessed absent a recommendation from the Security Committee.

VII. Building the Reserves

Two years ago as part of the approval of the 1999-2000 budget, the Board stated: "It is the intention of the ICANN Board to create a reserve account of at least one year's operating expenditures, to be funded over several fiscal years." That budget, which was premised on this guiding principle, was adopted by the Board at its meeting in Berlin.

We have made no essentially no progress towards this goal. The primary reason is that full budgeted contributions to reserves never materialize, largely because ccTLD revenues always fall considerably short of budgeted levels. Since there are no agreements with ccTLDs (other than .au and .jp), ccTLDs are under no legal obligation to support ICANN financially. Most generously make contributions. In aggregate, however, these contributions total considerably less than the share budgeted for all ccTLDs based on the allocation of costs recommended by the Task Force on Funding report adopted by the Board. In 2000-2001, for example, budgeted ccTLD revenues were $1,277,000 whereas actual revenues were approximately $880,000.

This perennial shortfall is an institutionalized reality that needs to be recognized until such time that there are sufficient agreements with the ccTLD registries. With or without that, the budgeted amounts are allocated across all ccTLD registries in spite of the clear fact that many smaller registries are simply not in a position to pay because they do not charge for domain names.

In the 2002-2003 Preliminary Budget, this reality is recognized by raising the planned "contribution to reserves" to a sufficient level (about $1.6 million) so that, even with a shortfall in realizing budgeted ccTLD revenues commensurate with historical experience, there would still remain a meaningful "contribution to reserves" at the end of the financial year.

One important effect of planning for a larger budgeted contribution to reserves is that the amount that must be allocated between the gTLD and ccTLD registries is correspondingly larger, resulting in a significant increase between 2001-2002 and 2002-2003.

VIII. Comments on 2001-2002 Projections

Column B of the Budget Schedule displayed in the following section summarizes the projected financial performance for the current year 2001-2002 displayed in the format adopted for these budgeting purposes. It projects a $389,000 surplus against a budgeted surplus of $750,000.

The primary reasons for this shortfall occur in both expense and revenue categories:

  • Higher than anticipated meeting costs attributable to (a) higher travel costs than projected, (b) extra security and other costs for the Marina del Rey meeting, (c) Board planning retreats, and (d) lower-than-planned levels of meeting sponsorship.

  • Higher administrative costs caused by a 250% increase in insurance costs and extra expenditures to provide for improved security of technical operations.

These higher costs were offset to some extent by freezing staff hiring and limiting staff travel.

The projected surplus stated in Column B, however, does not account for likely shortfalls in revenue. It assumes that ccTLDs will contribute the full budgeted amount of $1,300,000. Since, except for .au and .jp, there are no contracts between ICANN and the ccTLDs, there is no guarantee that this amount will be collected. ICANN depends upon the generous contributions of ccTLDs voluntarily given (again, except now for .jp and .au which give pursuant to agreement). As already noted, past performance indicates that the aggregate of these contributions falls considerably short of the budgeted amount. There will likely be a similar shortfall in 2001-2002, the exact size of which is difficult to predict at this time (in 2001-2002, the shortfall was about $400,000). This shortfall will significantly lower the projected surplus and, depending on the size of the shortfall, may result in a deficit.

Furthermore, at time of posting this Preliminary Budget, there is no agreement between ICANN and the RIRs. The RIRs have taken the position that they will not contribute to ICANN until an agreement is signed. An agreement has been negotiated among staffs, but is awaiting approval from the RIR Boards of Directors, following which it will require ICANN Board approval after a suitable period allowed for posting and public comment. There is no guarantee that an agreement will be signed in this fiscal year.

Should no RIR funding be received, ICANN will not only need to reduce even further the projected surplus for 2001-2002 by the $496,000 revenues budgeted during that year from the RIRs, but will also need to write-off the $856,000 in accounts receivable attributed to revenues from RIRs booked from the past two financial years. The combined reduction of $1,352,000 would obviously result in a significant loss, regardless of what the ccTLDs contribute in 2001-2002.

These situations underscore the precariousness of ICANN's finances.

IX. Preliminary Budget Schedule and Accompanying Notes

(See appended notes for explanations; all items are in US$)

                   
ICANN PRELIMINARY BUDGET
(2002-2003)
2001-02 Approved Budget 2001-02 Year-End Projection Difference Budget to Projection 2002-03  Base Budget 2002-03 Proposed Changes 2002-03 Preliminary Budget Notes
($Thousands) A B C D E F=D+E G
EXPENDITURES

Staff Full-Time Equivalents

21 17 4 21 6 27 (1)
Base Expenditures
  Personnel 2,217 1,883 (334) 2,294 507 2,801 (1)
  Professional and Technical Services 734 644 (90) 676 50 726 (2)
  Board & Public Meetings 450 1,001 551 800 (200) 600 (3)
  Other Travel & Meetings 425 301 (124) 320 75 395 (4)
  Administrative & Systems 704 902 198 929 50 978 (5)
Subtotal: Base Expenditures $4,530 $4,731 $201 $5,019 $482 $5,501  
 
Other Expenditures
  Public Meetings - sponsored events 250 134 (116) 200 (50) 150 (6)
  At Large Activities 250 250 0 0 200 200 (7)
  IDN Activities 0 100 100 0 200 200 (8)
  Support for DNSO Secretariat 0 0 0 0 170 170 (9)
  Unforseen Projects 0 0 0 0 200 200 (10)
Subtotal: Other Expenditures $500 $484 ($16) $200 $720 $920  
Total Expenditures $5,030 $5,215 $185 $5,219 $1,202 $6,421  
 
REVENUES
Base Revenues
Variable Registry/Registrar Revenues              
  TLD Name Registries/Registrars              
    gTLDs 2,369 2,369 0 2,369 1,417 3,786 (11)
    ccTLDs (Tier 3) 1,031 1,080 49 1,080 710 1,790 (12)
  Subtotal: TLD Name Registries/Registrars $3,400 $3,449 $49 $3,449 $2,127 $5,576  
 

IP Address Registries

$496 $496 $0 $496 $39 $535 (13)
Subtotal : Variable Registry/Registrar Revenues $3,896 $3,945 $49 $3,945 $2,166 $6,111  
Other Registry/Registrar Revenues

  Fixed TLD Registry Fees

    Tier 1 (ccTLDs & gTLDs)) 89 89 0 92 0 92 (14)
    Tier 2 (ccTLDs) 180 180 0 155 0 155 (15)
   

Tier 3 (gTLDs)

300 300 0 640 0 640 (16)
    Tier 3 (gTLD Initial Fixed Fees) 490 345 (145) 78 0 78 (17)
  Subtotal Fixed TLD Registry Fees 1,059 914 (145) 965 0 965  
  Registrar Accreditation Application Fees 25 62 37 25 10 35 (18)
 

Annual Registrar Accreditation Fees

500 687 187 500 200 700 (19)
Subtotal: Other Registry/Registrar Revenues $1,584 $1,663 $79 $1,490 $210 $1,700  
Subtotal: Base Revenues $5,480 $5,608 $128 $5,435 $2,376 $7,811  

Other Revenues

             
 

Public Meetings Sponsored Events

250 134 (116) 200 (50) 150 (20)
 

Contributions and Other

50 17 (33) 30 0 30 (21)
 

At Large Activities

0 0 0 0 200 200 (22)
Subtotal: Other Revenues $300 $151 ($149) $230 $150 $380  
    Less:Bad Debts or Bad Debt Allowance 0 (158) (158) (165) 0 (165) (23)
Total Revenues $5,780 $5,601 ($179) $5,500 $2,526 $8,026  
CONTRIBUTION TO OPERATING RESERVE $750 $386 ($364) $280 $1,324 $1,605 (24)
 

NEW gTLD OPERATING RESERVE

             
 

Balance brought forward

923 923 0 323 0 323 (25)
 

Expenditures

923 600 323 323 0 323 (26)
 

Balance carried forward

$0 $323 $323 $0 $0 $0  

Explanation of Columns:

Column A is the approved 2001-2002 Budget

Column B is the 2001-2002 Year-End Projection as of 3/15/02.

Column C is the difference between Columns B and A. Negative numbers imply lower than budget (lower expenses or lower revenues), positive numbers mean higher than budget (higher expenses or higher revenues).

Column D is the base budget for 2002-2003. It includes all previously authorized expenses and revenues, projected to cover inflation and other known factors. As such it includes no staff additions beyond the approved 2001-2002 levels.

Column E includes proposed changes in expenses; and changes in revenues anticipated as a result of increases in the numbers of TLD registries and registrars, and by the number of domain name holders.

Column F is the sum of Columns D and E.

Notes:

The following notes detail the assumptions underlying the proposed Preliminary Budget:

(1) ICANN was authorized 21 FTE in the approved 2001-02 budget. As of 3/15/02, only 17 of those positions have been filled; 4 remain vacant for reasons of anticipated cash flow and shortfall in predicted revenues. Beyond the 4 unfilled positions, 6 new positions are requested. A summary of staffing is to be found at the end of these notes (see Figure 1).

It is assumed for purposes of this Preliminary Budget that all positions will be filled for the full 12 months.

The justification for the positions already approved can be found in the approved ICANN budget. A summary of the requirements for the additional positions is as follows. Note that positions are considered fulltime staff positions even though they may be filled by contract personnel according to management judgment.

Contract Monitor: There are insufficient staff budgeted to provide adequate oversight of all old and new gTLD and other agreements, to provide adequate liaison activity, to analyze information provided, and to respond appropriately to the increasing flow of community complaints.

Technical SysAdmin: ICANN needs to strengthen its technical support environment to ensure its can operate a hardened, secure, reliable 7 x 24 facility environment to accommodate its emerging responsibilities in operating one of the root servers and the Internic, and to be able to assume responsibility in the future for the master distribution server. ICANN also needs to evolve the introduction of backup capabilities for the IANA function, which will involve appropriate technical planning. Current senior staff are too consumed by operational responsibilities and emergency support to have time for appropriate planning.

Security Technical Analyst: A Security Committee has been formed and its charter has been approved by the Board. The Board will consider conversion of this Committee to a Board advisory committee. Assuming this is approved, the Committee will require fulltime staff support to undertake its work in a serious manner.

New gTLD Planning/Evaluation: There is now very little time to engage in serious planning for the possible introduction of new gTLDs in consultation with the community. Neither is there time to organize evaluation of the current environment. Whereas most aspects of any evaluation will be contracted out, the definition of what evaluation needs to be done in consultation with the community and the ICANN Board, and the overall management of such a contract, needs to be properly staffed.

Junior Counsel (ccTLD and IANA Support): This position is required to strengthen IANA services and provide additional support for negotiating agreements with ccTLDs. Existing staff cannot cope with a continuing flow of IANA requests for redelegations and other IANA matters - which can be extremely time-consuming - and simultaneously negotiate agreements with ccTLDs. A decision to fill this position will ultimately depend on management's perception that ccTLD funding is forthcoming and that there is indeed progress to be made in negotiating additional ccTLD agreements.

Financial Analyst: ICANN's financial and budgeting has become increasingly complex given the additional gTLDs, the increased demands for financial planning and analysis, and the need to convert to programmatic budgeting. There is also the need to provide some relief to current staff to allow time to convert to a more robust accounting system that can better accommodate ICANN's needs.

Other potential staff or contract personnel not included in this line item: Three more temporary staff or contract personnel are included in line items elsewhere in the Preliminary Budget to support (a) activities associated with nurturing the formation of at large groups consistent with the ICANN Board resolution on March 14, 2002 (see Note (7)); (b) potential continuing support for the activities of the IDN Committee (see Note (8); and (c) potential support for the DNSO Secretariat (see Note (9)).

(2) Professional and Technical Service costs are projected to decline in 2002-03 because some technical support functions previously handled by outside contract services have now been accommodated by hiring internal technical staff. The budgeted figure, however, makes no allowance for any increase in litigation, or any costs that may be associated with any restructuring of ICANN.

(3) Costs of meetings have increased substantially over the past two years, and sponsorship (see Note (6)) per meeting has declined when the meetings are not in the United States. The total cost per meeting now averages $200,000 of which $50,000 can be expected to be offset through sponsorship. The Preliminary Budget reflects the Board decision to reduce from 4 to 3 meetings per year. Also included in the proposed budget is $50,000 in funding to contract out for meetings coordination function now carried out by staff. This activity does not have to be centered in Marina del Rey.

(4) Other Travel & Meeting costs are project cted to increase to allow for three factors: (a) inflation (b) costs of supporting an increased staff; and (c) costs of additional "hardening" of the L-root server" through contracting with an external professional facilities provider.

(6) This is the portion of meeting expenses that is projected to be offset by external sponsorship (see Note (3) and the line item corresponding to Note (20)). The budgeted amount for 2002-03 is lower than the corresponding amount for 2001-02 because (a) there is one fewer meeting, and (b) sponsorship per meeting has been lower than earlier expectations.

(7) The proposed budgeted amount is to support the formation of At Large organizations to "jumpstart" the process. This follows the Board resolution on this matter at the recent ICANN meeting in Accra, Ghana. The amount includes temporary support for one fulltime staff member or contract personnel to work with nascent organizations to help catalyze and institutionalize the process.

(8) The IDN Committee is an ad hoc committee of the Board. It anticipates completing its work in June 2002, but this is not certain. Even if it does complete its work, the Board may accept recommendations from the Committee that may have implications for further ICANN activities in this area. At the time of construction of the Preliminary Budget, the future is unknown. This amount, therefore, must be considered a "placemarker" at this time, pending further clarification. The funding could provide for continuing temporary staff support if required.

(9) This amount has been requested by the Names Council to provide staff and other support for a DNSO Secretariat.The Names Council points out that much of its work has depended on scarce volunteer resources, and that it could be significantly more productive in completing their work if some limited staff support were provided through the ICANN budget. Recognizing that the funding of dedicated staff support, funded by ICANN, to the Names Council is controversial, including among those entities that fund ICANN, this amount has been included in this Preliminary Budget to prompt further discussion.

(10) Every year projects arise in mid-year that are not anticipated when the budget is approved. For example, in 2000-2001, the IDN and Security Committees were formed. The indicated figure is a contingency amount to recognize this factor. It is not labeled "Contingency" as might be more customary because it is proposed that expenditures from this line item cannot be approved by the President, but require Board approval. Board approval must also require recognition of any continuing implications beyond the 2002-2003 fiscal year.

(11) See Note (12).

(12) This is the variable portion of the charges to gTLDs and ccTLDs. The total amount is set to ensure an adequate contribution to the operating reserve (see Note (24)), once revenues for all other categories have been determined. This total amount is split between gTLDs and ccTLDs proportional to the projected total number of domain names in each category as of March 1, 2002. This is in accordance with the recommendations of the Task Force on Funding and approved by the Board. Prior to the final budget, this number will be updated to project forward to July 1, 2002. The budgeted amount approximately equates to 12 cents per domain name.

It should be noted that the ccTLD/gTLD ratio is considered higher in 2002-03 than was the case in 2001-2002. This is because the reported domain name growth was higher for ccTLDs (almost 50% growth) than for gTLDs in spite of the new gTLDs that have been launched (see attached Schedule 1). It is unknown as to whether this represents real growth or is a reflection of the fact that the figures for 2001-02 may have been under-reported or underestimated. It should also be noted that actual contributed revenues (including fixed fees; see Notes (14) and (15)) in 2000-01 from ccTLDs were over $400,000 short of budget, and, without agreements, a similar shortfall can reasonably be expected for 2001-02.

(13) An agreement yet to be approved but that nevertheless guides budget considerations, provides for the IP address registries to pay ICANN the lesser of (a) 15% growth over the previous year's payment, or (b) 25% growth over the the payment three years prior to the year under consideration. Under the preliminary budget, the latter calculation would obtain and is indeed what is assumed (the amount budgeted three years prior was $428,000).

(14) These are budgeted fixed fees for Tier 1 ccTLDs and gTLDs (the latter are .museum, .aero, and .coop. However, (see Note (11)), it is unlikely that all Tier 1 ccTLDs are in a position to pay. There is discussion within the Finance Committee and the Budget Advisory Group as to whether these fees should be waived for Tier 1 ccTLDs, at least for 2002-2003.

(15) These are budgeted fixed fees for Tier 2 ccTLDs. These are the maximum that can be expected. Again (see Note (12)), it is not likely that this figure can be realized.

(16) This represents the annual fixed fees (paid in quarterly installments) associated with the Tier 3 gTLDs as follows:

Operator Registry Amount  
Verisign .com $ 100,000  
    .net 100,000  
    .org 100,000 (*)
Affilias .info 100,000  
GNR .name 80,000  
NeuLevel .biz 80,000  
Registry.Pro .pro 80,000  
   

Total

$ 640,000  
         
* .org may be assigned to another operator during the course of the fiscal year, in which case this fee will be split between VeriSign and the new operator

Although ICANN's registry agreements with these gTLDs allow a 15% increase in the above fixed fees, it is not proposed to budget that increase for this year. The three sponsored TLDs (.aero, .coop, and .museum) would be treated as Tier 1 or Tier 2 TLDs, depending on their size as of the first day of the fiscal year. It is anticipated that they will fall within Tier 1 as of that date.

(17) In 2001-2002 the initial fixed fees to be paid to ICANN by the new gTLDs were treated separately. Because of the timing of signing of agreements, the amount received fell short of budget. In 2002-2003, the balance of these initial fees has been folded into the standard Tier 3 gTLD fixed fees (see Note(16)) that are paid quarterly to ICANN on a continuing basis.

(18) These are projected fixed fees to be realized from new applications by potential gTLD registrars. Unless new gTLDs are introduced during the year, it is assumed there will be a decline in new applications.

(19) These are the annual fees paid by registrars to renew accreditation by ICANN. Growth is expected for 2002-03 over 2001-02 to reflect the increased applications that were received in 2001-02.

(20) See Note (6).

(21) This category includes interest income and other miscellaneous income. There is no expected source of contributed revenues in 2002-03 that has not already been implicitly assumed elsewhere in the Preliminary Budget.

(22) See Note (7). The expenditures for At Large support will be made only to the extent that separate external funding support is received.

(23) Previous budgets have not provided for bad debts. Based on operating experience, it seems wise that such a provision should now be included. The level is set based on operating experience. This item includes only non-payment of legally enforceable obligations such as contracts with gTLDs. Shortfalls in budgeted voluntary contributions are considered in setting the Contribution to Operating Reserve. See Note (24).

(24) The Contribution to the Operating Reserve has been set as a first step (attempted previously without success each year) towards building a necessary ICANN reserve equal to about one year's operating costs. This follows a directive of the Board and is consistent with prudent financial management. The level of the Operating Reserve is also set to anticipate a shortfall in ccTLD funding contributions compared with budgeted levels. See Note (12) and the earlier section on "Building the Reserves" for a fuller explanation.

(25) This indicates that a balance of $323,000 will be brought forward from 2001-02 to 2002-03 as a management reserve dedicated to the new gTLD program. The preliminary budget assumes that this will be spent in 2002-03 to cover the costs of any evaluation that is performed, as well as some possible legal costs.

X. Staffing for FY2002-2003

Present and proposed staffing levels are summarized in Figure 1.

ICANN STAFFING REQUIREMENTS 2002-03
   
Position Incumbent
Budgeted and Filled as of 2/15/02  
President & CEO Stuart Lynn
Vice President and General Counsel Louis Touton
Vice President and Chief Policy Officer Andrew McLaughlin
Chief Financial Officer/Business & Finance Manager Dianne Schroeder
Director of Communications Mary Hewitt
Counsel for International Legal Affairs Theresa Swinehart
Technical Systems Manager Kent Crispin
Manager of Technical Operations John Crain
ccTLD Liaison Herbert Vitzthum
Chief Registrar Liaison Dan Halloran
IANA Administrator Michelle Cotton
Network Administrator Jim Villaruz
Finance Administrative Assistant Monique West
IANA Administrative Assistant Lauren Graham
Registrar Liaison Ellen Sondheim
Administrative Assistant/Receptionist Michael Haynes
Administrative Assistant Bill Huang
   
Budgeted but Unfilled as of 2/15/02  
Policy Analyst/Liaison  
Webmaster  
gTLD Registry Liaison/Administrator  
Technical Systems Programmer  
   
Additional Requested for 2002-03  
Contract Monitor  
Technical Sysadmin  
Security Technical Analyst  
New gTLD Planning/Evaluation  
Junior Counsel (ccTLD/IANA Support)  
Financial Analyst  
   
Other Requested Temporary or Contract Personnel in 2002-03  
At Large Coordinator  
IDN Committee Support  
DNSO Secretariat Support  

Endnotes to Preliminary Budget discussion:

1. The Committee is currently scheduled to complete its recommendations before the end of June. There may, however, be some spillover until early in the year 2002-2003.

2. Official accounting reports defer revenues associated with services that are rendered across the fiscal year and across fiscal year boundaries. For example, Annual Registrar Accreditation Fees are distributed throughout the period of accreditation, regardless of when they are actually received. Management practice for budgetary purposes, however, is to include and project income at the time it is invoiced. This is to provide for greater clarity of understanding.


Schedule 1: TLD Assumptions

The following tables detail the assumptions made regarding domain name counts for purposes of the Preliminary Budget. These assumptions are important since they form the basis for allocating budgeted revenues among gTLDs and ccTLDs (see Notes (11) and (12)). The counts used will need to be refined between posting of the Preliminary Budget and of the Proposed Budgeted. This will require the cooperation of those TLDs affected by these counts.

As was mentioned in Note (12), the counts for ccTLDs have jumped 48% over the numbers used last year. Some of this is attributable to growth in registrations; in other cases it is attributable to in the data used for 2001-2002. Since gTLD counts have not increased as much, the net result is that the ccTLD share has increased from 27.6% to 32.1% of the total.

The Tier 3 ccTLDs counts used for purposes of the Preliminary Budget are:

TIER 3 ccTLDs
Country Code Country Name Number of Domains Percent Growth Percent of Total  
    Jan 1 2001 March 1 2002      
.de Germany 4,000,000 5,200,000 130% 33.0%  
.uk United Kingdom 2,500,000 3,100,000 124% 19.7%  
.nl Netherlands 500,000 695,000 139% 4.4%  
.it Italy 400,000 613,000 153% 3.9%  
.ar Argentina 317,000 515,000 162% 3.3%  
.cc Cocos (Keeling) Islands 200,000 500,000 250% 3.2%  
.jp Japan 55,000 467,000 849% 3.0%  
.kr Korea, Republic of 350,000 460,000 131% 2.9%  
.br Brazil 350,000 415,000 119% 2.6%  
.ch Switzerland    110,000 400,000 364% 2.5%  
.dk Denmark 150,000 352,000 235% 2.2%  
.au Australia 150,000 281,826 188% 1.8%  
.ca Canada 110,000 240,000 218% 1.5%  
.at Austria 155,000 225,000 145% 1.4%  
.tv Tuvalu 200,000 215,000 108% 1.4%  
.be Belgium 89,000 177,000 199% 1.1%  
.ws Western Samoa 5,000 150,000 3000% 1.0% *
.fr France 60,000 141,000 235% 0.9%  
.pl Poland 80,000 140,000 175% 0.9%  
.no Norway 56,000 130,000 232% 0.8%  
.cn China 100,000 127,000 127% 0.8%  
.se Sweden 70,000 122,000 174% 0.8%  
.tw Taiwan 30,000 120,000 400% 0.8% *
.ru Russian Federation 58,000 120,000 207% 0.8%  
.nz New Zealand 80,000 118,560 148% 0.8% +
.cz Czech Republic 80,000 117,000 146% 0.7%  
.za South Africa 80,000 110,000 138% 0.7%  
.nu Niue 62,000 91,884 148% 0.6% +
.to Tonga 30,000 80,000 267% 0.5% *
.hu Hungary 43,000 73,000 170% 0.5% *
.cl Chile 55,000 73,000 133% 0.5%  
.mx Mexico 57,000 67,000 118% 0.4%  
.ms Montserrat 27,000 57,000 211% 0.4% *
.ro Romania 16,000 53,000 331% 0.3% *
  Total 10,625,000 15,746,270 148% 100.0%  
             
(+) Domain name counts estimated from the average of all other ccTLDs. All other counts are derived from websites or other direct information.
(*) Last year were Tier 1 or Tier 2

The gTLD counts are estimated below. They will need to be updated to reflect July 1, 2002 estimates or actual. The three sponsored new gTLDs (.museum, .aero, and .coop) will not have sufficient doman name counts as of July 1, 2002 to qualify for Tier 3:

gTLDs  
gTLD Registry Number of Domains Percent Growth Percent of Total
    Jan 1 2001 March 1 2002    
.com VeriSign 21,000,000 24,420,000 116% 73.3%
.net VeriSign 4,200,000 4,654,000 111% 14.0%
.org VeriSign? 2,700,000 3,059,000 113% 9.2%
.info Afilias   -   550,000 n.a 1.7%
.biz Neulevel -   650,000 n.a 2.0%
.name GNR -   -   n.a 0.0%
.pro registry.pro -   -   n.a 0.0%
    27,900,000 33,333,000 119% 100.0%

The split between gTLDs and ccTLDs is thus calculated as follows:

  2001-2002 2002-2003
  No, of Domain Names Percent No, of Domain Names Percent
gTLDs 27,900,000 72.4% 33,333,000 67.9%
ccTLDs 10,625,000 27.6% 15,746,270 32.1%
  38,525,000 100.0% 49,079,270 100.0%

Tier 2 registries are those estimated to house between 5,000 and 50,000 domain names. The budget assumes that each of these would be requested to contribute $5,000. The 31 registries assumed to be in this category are listed in the table at the end of this Schedule.

The remaining 192 registries (including .museum, .aero, and .coop) are assumed to be Tier 1 for purposes of this Preliminary Budget.

TIER 2 ccTLDs
Between 5,000 and 50,000 domain names
Country Code Country Name
.ac Ascension Island
.as American Samoa
.cx Christmas Island
.es Spain
.fi Finland
.fm Micronesia, Federal State of
.gr Greece
.hr Croatia/Hrvatska
.id Indonesia
.ie Ireland
.il Israel
.is Iceland
.lt Lithuania
.lu Luxembourg
.la Latvia
.my Malaysia
.ph Philippines
.pt Portugal
.sg Singapore
.sl Slovenia
.sk Slovak Republic
.st Sao Tome and Principe
.tc Turks and Ciacos Islands
.tf French Southern Territories
.th Thailand
.tu Turkey
.ua Ukraine
.us United States
.uy Uruguay
.ve Venezuela
.yu Yugoslavia


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