(July 1, 2001 to June 30, 2002) CONTENTS
This document has been prepared to provide background materials for discussion of ICANN's next fiscal year budget. It has been reviewed by ICANN's Finance Committee and by its annual Budget Group. It is now being posted for public comment prior to the ICANN public forum in Melbourne, Australia on March 12, 2001. To comment on this document, please send an e-mail to budget-comments@icann.org. These discussions are part of the Board's consideration and adoption of a budget for the next fiscal year. The budget process, which is described in Section IV, will result in a completed budget being submitted by the President for Board approval not later than 45 days in advance of the beginning of the fiscal year on July 1, 2001, as required by ICANN Bylaws Article XI, section 4. Section II of this staff paper asks a number of questions about ICANN budget issues on which interested parties are invited to comment. II. Budget Issues for FY2001-2002 The following issues, presented as questions, are among those which the Board and staff will be considering in the development of the budget for FY01-02. Public comment on these issues, and others not listed, is encouraged. The recently appointed Finance Committee of the ICANN Board has a responsibility to examine long term as well as short term budget and resources issues. In addition to the specific questions asked below in reference to the FY01-02 budget, the Committee wishes to hear from members of the community on matters related to the long term mission of ICANN, the adequacy of financial plans for the longer term, the potential sources of financial support to meet future needs, and related questions.
Fiscal year 2001-2002 will be the third full budget year for the corporation and the second in which the preparation of the budget is based on significant operating experience. 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 the annual budget cycle. These recommendations were the basis for development of the detailed annual budget process last year and, with minor procedural revision, are continued in use for the FY01-02 budget cycle. The TFF report is available at <http://www.icann.org/committees/tff/tff.htm>. 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 committee for 2000-2001 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 January, 2001, ICANN's President appointed the members of the annual budget group for FY2001-2002 in accordance with the recommendations of the TFF report and based on nominations from Domain Name and Address Registries and Registrars. The FY01-02 members and their affiliations are:
IV. Budget Process for FY2001-2002 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 FY2001-2002, the Board expects to act on the proposed budget at its meeting of June 4, 2001 in Stockholm. The ICANN annual budget process follows three general cycles. The first involves review of financial results for the first six months of the fiscal year, and the development of an updated forecast of actual results for the entire current fiscal year. This cycle is nominally completed in January. The second 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, which is being held in Melbourne in March, 2001. The third cycle includes preparation of a Proposed Budget for the next fiscal year, based on results of review of the Preliminary Budget. The Proposed Budget, after internal review and development by ICANN staff, the Budget Group and the Finance Committee, is posted for public comment three weeks before the second quarterly meeting, or approximately May 14. The Proposed Budget is reviewed and adopted by the Board at its second quarterly meeting or other date of its selection. The calendar of currently scheduled budget related meetings and teleconferences for the FY01-02 budget is as follows. The Finance Committee meets as needed during the budget process in addition to the meetings listed below.
V. Budget Priorities for FY2001-2002 The following specific priorities for the current budget year were established in the adopted budget in June, 2000.
Progress on these priorities as of the midpoint of the fiscal year is as follows:
The priorities for each new budget period are a mix of general priorities and management responsibilities, of items carried forward from the current year, as well as new matters. The following list for next year, prepared by the ICANN staff, is non-exhaustive and is intended to serve as the basis for public comment. It does not, at this time, necessarily reflect the views of the ICANN Board, which will consider the list following public comment and in accordance with the budget process described in section IV above.
VI. FY2001-2002 Preliminary Budget - Schedule A and Notes
Introduction. Preliminary Budget Schedule A contains a base budget for FY01-02. The numbers take into account the results of the midyear review of the current fiscal year, as reflected in the projection in the second column, with adjustments to incorporate known year to year budget changes as described in the notes below. Schedule A is not the planned budget for next year; it is a projection of the revenue and expense numbers for the next fiscal year if no changes are made to existing plans and programs other than those described below. In other words, it is the base from which changes in programs that have budgetary effects, either increases or decreases, may be discussed and possibly approved by the ICANN Board in the course of the budget process. It should also be noted that although the budget schedule format is conventional with respect to the presentation of revenue and expense categories, the process of determining the budget is to work backwards from expense and reserve categories to the amounts of revenue required to recover ICANN's costs of operation. In other words, the approved expense amounts are agreed upon first, and the revenue necessary to cover those costs is determined last. Summary. The preliminary budget shows a year to year increase in total expense of $361,000, or 8.6%, to $4.580 million. Added to this is a planned increase in reserve contribution of $195,000, or 24.2%, to $1.0 million, producing a need for total revenue to recover expenses and reserve contribution of $5.580 million. Of the total needed revenue, it is anticipated that $825,000 will be available from one time or special project sources. Total revenue from continuing revenue sources is therefore projected at $4.755 million. Of this amount, $471,000, or 10%, is apportioned to Address Registries under current Board policy, and the remainder, $4.284 million, is apportioned to Domain Name Registries. Note (a) below contains more detail on domain name registry contributions. The preliminary budget includes two programmatic adjustments for the next budget year. The first is the addition of a full time registry administrator to support the domain name registries and particularly the country code registries and the seven new sponsored and unsponsored top level domain name registries that are now being delegated and will be in business in FY01-02. The second is an increase of $200,000 to cover costs of implementation and operation of ICANN's participation in the root server system in accordance with the plan recommended to the Board by the Root Server System Advisory Committee. Notes (g) and (k) below contain additional detail on these increases. A provision for increased costs in salaries, benefits, travel, meeting and administrative expenses of five percent has been included in the preliminary budget projections. (a) Domain Name Registry
and Registrar revenue. The format of these line items has been
revised from previous budgets to reflect the changes resulting
from the introduction of new TLD registries. The term Unsponsored
registries now includes biz, com, info, name, net, org, and pro.
The term Sponsored now includes aero, coop, and museum. ICANN
is in the process of revising the financial structure initially
adopted in FY99-00 for apportioning revenue among the different (b) Accreditation Fees. Each ICANN accredited registrar pays an initial and annual renewal fee of $5,000 to support the cost of the accreditation program. Although the number of accredited registrars now exceeds one hundred, the extent to which they will renew their accreditation is uncertain in view of highly competitive conditions in the registrar marketplace. Therefore, this line item is continued in the next year's budget at a conservative level. In the current fiscal year budget, the accreditation application fees and renewal fees were combined, but have now been separated. The projected reduction in accreditation application fees reflects a slowing in this activity. (d) Top Level Domain Name Registry Application Fees. The ICANN Board is conducting a "proof of concept" introduction of new sponsored and unsponsored top level domain name registries. Whether the Board will consider additional registry introductions in FY01-02 is not known at this time. Also unknown at this time is the extent to which there will be any funds remaining in the new TLD application fees account at the conclusion of the introduction phase. Application fees received are intended to cover all costs of the introduction. Provision for this activity will be made when more complete information is available later in the year, based on decisions of the Board to be taken on this issue. (e) Special Project Grants. During the current fiscal year, ICANN received grant funding from INFODEV for travel grants to ICANN quarterly meetings, and also received grant funds from the Markle Foundation for support of the At Large membership registration and voting project. Neither of these sources of funds is expected to continue into the next fiscal year. The Board has recently begun a comprehensive study of At Large membership and has authorized initial funding of $100,000 from current year funds. Study requirements for funding in the next fiscal year will be known later in the year, and an appropriate adjustment in the budget made at that time. (f) Contributions and Other. Partly as a result of an effort to contain costs of ICANN's quarterly meetings, there is now an active meeting sponsorship effort conducted by the meeting local host organization and by ICANN staff. This support has enabled the quarterly meetings to continue without meeting fees and with a higher level of amenities than the core budget would provide. It is estimated that meeting sponsorships in FY01-02 will be at the level of $250,000 and this new source of one time funds is included in this line item. On the expense side, the budget shows an increase resulting from cost increases associated with energy surcharges on airfares and from sponsored events at meetings that would not otherwise be scheduled. The projected total expense of $700,000 is funded by $450,000 from core revenue and $250,000 from sponsorships. (g) Staffing and Personnel Expense. The increase of $156,000 reflects cost rise on the base personnel budget, which includes all staff compensation, benefits, taxes, recruiting, turnover and related costs, as well as the addition of a new budgeted staff position for domain name registry administration. There is an active staff recruiting effort in progress to fill vacant positions and it is expected that the current 15.3 budgeted positions will be filled by the beginning of the new fiscal year. Additional staff detail is contained in the following section. (h) Professional and Technical Services. This line item includes outsourcing of selected legal services, public affairs, and technical consulting requirements. Outsourcing is used to maintain ICANN´s staffing flexibility and to enhance cost transparency. Further, due to the regionally different legal systems, legal services need to be provided by local experts. Efforts are in progress to reduce this line item. The net difference for the next fiscal year of cost rise in the price of external services versus cost containment measures is not known at this time and the amount has been held constant in the preliminary budget. (j) Other Travel and Meetings. This line item shows a small increase to reflect cost rise in travel plus the effects of being fully staffed in the next fiscal year. (k) Administration and Systems. This cost category includes all of the non-personnel general and administrative expenses associated with ICANN activities, along with computer facility, hardware, software, maintenance and operating costs. Previous budget savings in this category will disappear in FY01-02 as a result of full staffing. During the course of the current year, the systems costs are increasing to reflect implementation of the root server systems plan, including a second computer facility, backup hardware and power, redundant connectivity, and 7/24 operational support. For the next fiscal year, an estimated annualized cost of an additional $200,000 has been included in the budget. (l) Contribution to Operating Reserve. At the end of the previous fiscal year on June 30, 2000, ICANN's Net Asset, or Reserve, position was $1.958 million. Of this amount, approximately $500,000 was in doubtful accounts receivable, leaving an available reserve of approximately $1.5 million, of which $780,000 was cash. In the current fiscal year, the projected reserve contribution at June 30, based on information available at midyear, is $1.053 million. However, this reserve projection is based on payments from country code domain name registries of $1.496 million, and these registries have not yet signed agreements committing them to this total revenue amount. The Board has established a financial target of maintaining one year's operating funds in reserve, or approximately $4.5 million. The budgeted increase in reserve contribution, $195,000 or 24%, is intended to shorten the time required to achieve this level of reserves, which was originally intended to be three years from inception in 1998. Staff Organization. The approved organization plan for ICANN currently includes 15.3 full time equivalent positions.The preliminary budget for next year requests an additional position, which would bring the total to 16.3. It is Board policy that these positions are to be filled flexibly to meet the needs of the corporation through a combination of full time and part time employees, consultants, fellowships and other means as appropriate. The preliminary budget for the next fiscal year assumes that all positions are filled during the fiscal year. The staff position titles and their status in February, 2001 are as follows:
Staff Compensation. Staff are compensated on the basis of competitive market conditions in Marina del Rey, California, or wherever the position is geographically located if not at the headquarters office. The Board approved salary ranges currently are set at the following levels: Officers of the Corporation $ 100,000 - 300,000 Managers 40,000 - 120,000 Technical and Administrative Specialists 35,000 - 80,000 Nonexempt administrative positions 20,000 - 35,000 Staff costs included in the personnel expense line item assume that vacant positions are filled at the midpoint of the associated salary range and that current incumbents will receive merit increases on an annual basis. Comments concerning the layout, construction and functionality of this site should be sent to webmaster@icann.org. (c) 2001 The Internet Corporation for Assigned Names and Numbers All rights reserved. |
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