(July 1, 2001 to June 30, 2002)
This document contains the proposed budget for ICANN for FY2000-2001, commencing July 1, 2001. It is being submitted to the Board of Directors for action at the Stockholm meeting on June 4, 2001 in accordance with the provisions of Bylaw Article XI, Section 4.
This Proposed Budget has been developed in consultation with the Finance Committee of the Board of Directors and with the Budget Group. It is an outcome of those consultations and of other considerations by now President and CEO M. Stuart Lynn. The Proposed Budget is a refinement of the Preliminary Budget that was posted February 19 by then ICANN President and CEO Michael Roberts.
The Budget calls for Total Expenditures of $5,030,000, a 19.2% growth over the 2000-2001 Budget. However, of these expenditures, $4,530,000 are "Base Expenditures" that reflect the continuing expenses of the Corporation, a 10% growth over 2000-2001. The "Other Expenditures" totaling $500,000 comprise either one-time expenditures, such as the At Large Membership Committee study, or expenditures that are offset by specific revenues, such as local sponsorship of Board meeting activities.
Revenues are budgeted to grow 20% to $6,030,000. The portion of this attributable to "Base Revenues" is $5,455,000, a 13.3% growth. The majority of the "Other Revenues" is attributable to local sponsorship of Board meetings and expenditures from Reserves to support the At Large Membership Committee as indicated above.
The Proposed Budget also includes a contribution to the Operating Reserve of $1 million. This is an increase of $195,000 over the previous budget and is consistent with the Board's goal of achieving an operating reserve approximately equal to one year's expenditures. Additional detail on the Operating Reserve is in Section B.6.
The Proposed Budget also recommends a programmed increase in ICANN's authorized staffing levels, from 15.3 to 21.0. Two of these positions are supported by redirection of funds from the outside professional services category, that is, these positions have no net effect on the budget. The staff increases are required to ensure performance on continuing services and to accommodate new and special priorities for 2001-2002 (see Section III.A on Budget Priorities and Issues).
There may be a considerable difference between budgets and actual operating experience, particularly with respect to potential gaps between budgeted and actual revenues. ICANN's experiences since its startup phase reflect these concerns. An approved budget is not a license to spend. It is an authorization provided that actual revenues materialize to provide for those expenditures. Thus, staff increases and contributions to reserves will only occur if there are sufficient revenues. Actual revenues fell short of budgeted revenues in 1999-2000 and may do so again in the current year.
ICANN is moving from a start-up mode into a more stabilized mode of operation. Up to now it has operated with a small staff, most of whom work extraordinary hours addressing a substantial number of complex issues while maintaining basic services of the organization. No organization can operate in this mode indefinitely. ICANN will always have a small staff, but it needs to be larger than it is today if ICANN is to achieve its basic mission.
With respect to registries with whom ICANN has not yet reached written agreements, the Proposed Budget for 2001-2002 reflects some changes from the prior year based on extensive consultation with those organizations in recent months. The changes are reflected in the budget schedule and are described in Appendix A.
The following sections of the Proposed Budget contain additional details and background information.
The ICANN Bylaws require the President of ICANN to prepare and, at least 45 days prior to the commencement of each fiscal year, submit to the Board a proposed annual budget of the Corporation for the next fiscal year. This document contains that proposed budget in fulfillment of the Bylaw requirement.
In December, 2000 the Board appointed a Finance Committee composed of members of the Board to:
This proposed budget has been developed in full consultation with the Finance Committee. The members of the Finance Committee are Linda Wilson (Chair), Jonathan Cohen, Helmut Schink, and Ivan Moura Campos.
In addition to the Finance Committee, the President is advised by the Budget Group, which is comprised of representatives of domain name and address registries and registrars. These organizations contribute the largest share of ICANN's financial support and the Budget Group's interaction with the Finance Committee and the President on budget issues provides special financial expertise during the annual budget process. For FY01-02, the members of the Budget Group are:
This Proposed Budget has been developed as a result of these consultations and of other considerations by now President and CEO M. Stuart Lynn. The Proposed Budget is an outgrowth and refinement of the Preliminary Budget that was posted February 19 by then ICANN President and CEO Michael Roberts.
Priorities for 2001-2002 are a combination of highlighted and continuing priorities. In combination, these priorities are directed to supporting constituencies in their endeavors to ensure a stable Internet worldwide, an Internet that can adapt rapidly to incorporate new possibilities and meet new challenges and user demands. The staffing requirements to meet these priorities are defined in the next section.
Highlight Priorities (the numbers are for reference purposes and do not refer to any particular ordering of the priorities):
Summary. The proposed budget (see Schedule A) shows a year to year increase in total expense of $811,000, or 19.2%, to $5.030 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 $6.030 million.
Expenditures and revenues, however, are divided into two categories: "Base" and "Other". "Base" reflects the true continuing operations of ICANN, whereas "Other" reflects either one-time expenditures (such as the At Large Study), or expenditures that are essentially a pass through matched by designated external funds - such as external sponsorship for specific local activities associated with quarterly meetings where the activity would not occur if the sponsorship funds were not obligated.
With these designations, "Base" expenditures are budgeted to increase 10%, matched by an increase in "Base" revenues of 13.3%. The difference is attributable to an increased contribution to the reserve.
Notes to Proposed Budget.
(a) Personnel. Exhibit 1 in the following section contains detail on proposed staffing levels and position descriptions. This category includes all salary, wage, benefit and recruiting expenses. It also includes costs of consultants and part time employees who are filling staff positions on a temporary basis.
Assuming that currently vacant staff positions are filled at the midpoint of existing ranges, total personnel costs are projected at $2.217 million, an increase of $606,000, which is composed of $81,000 in cost rise for salaries and benefits, and $525,000 in new budget authority for five new positions, and the upgrading and revising of an existing 30% time position. This amount may vary up or down somewhat based on actual recruiting experience in the course of the fiscal year.
As a result of a review by the incoming President and Chief Executive Officer, a number of new staff positions are being proposed for the next fiscal year (see C. Budget Exhibit 1 - Staff Organization & Requirements). When fully implemented, the proposed increases would raise the full time equivalent staff positions from 15.3 to 21.0.
(b) Professional & Technical Services. This category includes outsourcing agreements for legal services, public education and outreach and a small amount for purchased technical services. Continuing a trend from the prior year, the budgeted expense has been reduced by $250,000 to reflect the transfer of funds to the personnel budget to cover the positions of associate general counsel and of communications director.
(c) Board and Public Meetings. This category covers expenses associated with the Board's quarterly public forums and face to face meetings, as well as periodic teleconferences. Included are travel, hotel, meeting room, technical and administrative support, etc. 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 base budget would provide. The portion of the public meetings covered by sponsorships is now shown in the "Other" expenditure and revenue categories on the budget schedule. It is estimated that meeting sponsorships in FY01-02 will be at the level of $250,000. The line item for the portion of Board and public meeting expense borne by the continuing budget shows a decrease of $150,000, which is attributable to the sponsorship program and to continuing cost containment efforts.
(d) Other Travel and Meetings. This category covers staff travel in connection with job assignments, Director travel in connection with outreach activities, as well as committee and other scheduled meetings and events not included in the quarterly Board meetings. The budgeted amount for next year of $425,000 reflects the net of increased costs, increased numbers of staff, and efforts to control costs in this category by requesting reimbursement from meeting hosts, etc.
(e) 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.
(f) At Large Membership
Project and Study. At its recent
Melbourne meeting, the ICANN Board allocated $450,000 in reserve
funds to cover the costs of the study of At Large membership
which is currently in progress. Of the total amount, $200,000
will be expended in the current fiscal year (in addition to $250,000
in one time funds already expended on the At Large election earlier
in the fiscal year), and $250,000 will be expended in the next
fiscal year during the months July through November.
(g) Domain Name Registries and Registrars. 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. Apportionment of revenue contributions to domain name registries has been the subject of special study during this year's budget process, and the basis for contributions has been substantially revised in the proposed budget. Detail on this aspect of the budget is contained in Appendix A. Total revenue from domain name registries and registrars is budgeted at $4.459 million, an increase of 14.7% or $573,000, of which $490,000 is provided by contributions from new TLD registries. It should be noted that introduction of new TLD's, coupled to the revisions in the basis for apportionment, results in a decrease in the proportion of the total amount budgeted to come from country code registries of 8.5%, from 34.7% to 26.2%.
(h) IP Address Registries. Under current budget policy, 10% of the total base revenue requirement from domain name and address registries is allocated to the IP Address registries. For the next fiscal year, this results in a total amount of $496,000, which is an increase of $68,000 or 15.9%.
(i) Registrar Accreditation Fees - Annual. Base revenue from annual accreditation fees paid by domain name registrars is budgeted to remain level for the next fiscal year. Although accreditation activity has been high in the past year, the current uncertainty in this Internet business segment suggests that a cautious approach to projecting revenue be used. For FY01-02, the annual accreditation fee will be revised to take account of the fact that registrars may now choose to be accredited for more than one registry. The fee schedule is being revised - see <http://www.icann.org/stockholm/registrar-fee-topic.htm> - to provide that the annual fee, including accreditation for one registry, is $4,000. Accreditation for additional registries will cost $500 each. This replaces the current fee of $5,000 per year for com/net/org combined.
This category includes fees for processing of accreditation applications (the application fee is proposed - <http://www.icann.org/stockholm/registrar-fee-topic.htm> - to increase from $1,000 to $2,500, but overall revenues are projected to decline because of a reduction in the number of applications received); for sponsored events at public meetings; an allocation of reserves by the ICANN Board to cover the costs of the current study of At Large membership; and unrestricted contributions and miscellaneous items. A total of $575,000 is anticipated from these sources in the next fiscal year.
(j) 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 this fiscal year, the projected reserve contribution at June 30, based on current information, is $975,000. However, this reserve projection is based on payments from country code domain name registries of $1.277 million and IP Address registries of $428,000, 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.
(k) Top Level Domain
Name Registry Application Fees.
ICANN is conducting a "proof of concept" introduction
of new sponsored and unsponsored top level domain name registries.
Whether the Board will be able to 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.
ICANN is moving from a start-up mode into a more stabilized mode of operation. Up to now it has operated with a small staff, most of whom work extraordinary hours addressing a substantial number of complex issues while maintaining basic services of the organization. No organization can operate in this mode indefinitely. Services to the community are not rendered at the level that are expected; deadlines slip; work is not completed in as thorough a manner as required; demands exceed the ability to respond. The organization is vulnerably dependent on a few key individuals without adequate backup. The workpace is frenetic and interrupt-driven, loaded with sudden additional priorities, such as governmental hearings sprung with little notice.
ICANN will always have a small staff, but it needs to be larger than it is today if ICANN is to achieve its basic mission. A key objective, therefore, for FY2001-2002 is to enlarge the staff so that services can be credibly maintained and the basic mission accomplished. Some expansion is predicated on transferring funds from external services to staffed positions, but a level of external services is still maintained to cushion spikes in demand and to provide for future reductions in expenditures once certain basic tasks are accomplished, such as signed agreements.
(a) Currently filled
(b) Budgeted but currently vacant
(c) Requested Staff Additions in FY01-02 budget
(a) Positions budgeted by funds reallocation:
It is proposed to reallocate $250,000 of funds allocated within the existing budget for outside Professional Services to fund an Associate General Counsel and a Director of Communications. The President believes that funds now spent on outside counsel and public relations services can be better utilized through hiring ICANN staff. Thus, positions to be created through this reallocation are:
(b) Additional positions requested within the proposed budget expansion:
Although these positions are provided for within the proposed budget, they would not be recruited until sufficient funds are received from the indicated revenue sources to cover their costs.
The above, in the judgment of the President and CEO, represents a modest and reasonable expansion of ICANN staff to ensure that services are delivered to the satisfaction of the communities served and that ICANN can fulfill its responsibilities and basic mission. It does not provide for any expansion in those responsibilities or additional services that the community may require.
4. Compensation Ranges. Staff are compensated on the basis of competitive market conditions in Marina del Rey, California, or wherever the position is geographically located. The amounts shown below are inclusive of fringe benefits. The Board approved salary ranges currently are set at the following levels:
President and Chief Executive Officer
(M. Stuart Lynn)
Vice President and General Counsel (Louis
Senior Policy Officer (Andrew McLaughlin)
Manager, IANA Services (Michelle Schipper)
Technical Operations Coordinator (John
Network Administrator (Jim Villaruz)
Chief Registrar Liaison (Dan Halloran)
Registrar Liaison (Ellen Sondheim)
Finance Administrative Assistant (Monique
IANA Administrative Assistant (Lauren
Administrative Assistant (Bill Huang)
Manager, Technical Systems (vacant)
Policy Analyst (vacant)
ccTLD Administrative Assistant (vacant)
The FY2001-2002 budget contains specified revenue contribution amounts to be allocated to Domain Name Registries. The following paragraphs describe the approach that is proposed to be used to allocate these funding requirements. This approach is consistent with previous discussions with the Finance Committee and the Budget Group, but also clarifies and amplifies those discussions.
1. Where agreements exist. Where agreements exist with specific TLD Registries and Registrars, the formulas specified in the agreements will be followed and the TLD will be invoiced accordingly. To the extent that contribution formulas contained in existing, or to be executed, agreements vary from the formulas contained in this Appendix, the language in the agreements is controlling. The intent is to bring all agreement language into compliance with the procedures described here as soon as possible.
2. Where agreements do not yet exist. Where agreements do not yet exist, the TLD Registry will be asked to make a contribution. A suggested figure for the contribution will be the amount calculated according to section B below. The request for contribution will be accompanied by a letter from the ICANN President explaining the purposes and benefits of ICANN.
The TLD Registry may make any contribution it considers appropriate in relation to the suggested amount. Those who do not require an invoice may pay directly. Those who require an invoice will be asked to sign a "Pledge Form" indicating how much they plan to pay. ICANN will then invoice the TLD Registry against that Pledge. [This procedure for voluntary contributions where agreements have not yet been reached applies to the IP Address Registries as well as to Domain Name Registries.]
If the total contribution received in any one year exceeds the amount which registries in a given tier (see section B below) are budgeted to pay, any additional amount will be applied as follows:
In the foregoing and in what follows, the phrase "contribute or pay" means that the word "contribute" applies where agreements are not in place; and the word "pay" applies where an agreement is in place and a domain name or address registry or registrar would be invoiced according to the agreement.
B. Domain Name Registry Contribution Calculations
1. The total budgeted revenue to be recovered from domain name registries and registrars is the result of apportionment of the total base revenue requirement for the fiscal year to all revenue classes in the base budget category according to the consensus budget development process. See Table 1 below and Budget Schedule A for the amounts proposed to be recovered in fiscal year FY01-02.
2. Proportional registry size, unless some other measure is adopted through the consensus budget process, will be the basis for actual or suggested (according to whether or not they are under agreement) revenue contributions from domain name registries. Proportional registry size is calculated, unless some other measure is adopted through the consensus budget process, by taking the total number of domain names in the respective registry databases as a percentage of total domain names registered in all domain name registries. For registries under agreement, the computation of relative registry size will be made as of the first day of the financial year. The computation will be made as of the first day of each fiscal year as a basis for calculating suggested contributions for those registries not under agreement, and for determining whether a registry falls within Tier 1 or Tier 2. (see below). Domain name registries not under agreement who pledge contributions shall have the option of receiving invoices against those pledges quarterly or annually.
3. Domain name registries are divided into three tiers, according to registry size, as follows:
Tier 1: Registries having fewer than 5,000
Unless otherwise specified in agreements,1 Tier 1 registries are expected to contribute or pay $500 each. Tier 2 registries are expected to contribute or pay $5,000 each. The 5,000/50,000 tier boundaries as well as the fixed amounts to be paid will be reconsidered annually. The foregoing figures will apply to FY2001-2002.2
4. For FY01-02 only, the seven new gTLD registries will have an amount to be paid calculated according to a formula with a fixed component and a variable component, since those registries will be commencing operations during the next fiscal year. The share of the total revenue from the seven new registries is budgeted at $340,000 from the four unsponsored registries and $150,000 from the three sponsored registries, but this share may increase depending on quarterly computations of registry size as applied to individual registries. The amount due from these registries in any quarter will be the larger of (a) the quarterly fixed fee, or (b) the registry's proportional (according to registry size) amount of the total amount for that quarter budgeted for all name registries.
5. The amount to be apportioned to Tier
3 registries is determined by subtracting from the total domain
name registry contribution those amounts contributed by the Tier
1 and Tier 2 registries. In addition, for FY01-02 only, the budgeted
amounts from the seven new registries are also subtracted. The
remainder is allocated to individual registries based on their
proportional size relative to all other Tier 3 registries.
N.B. Table 1 based on reliable but unverified registry size information as of March, 2000
As examples of the foregoing (assuming that number of domain names is used as a surrogate for registry size - see B.2 above):
ccTLD's are used in the foregoing examples since all gTLD's are expected to be under agreement with ICANN, and those agreements will be controlling. The agreements, however, are expected to follow the formulas for Tier 3 domain name registries described in Section B above.
Appendix B - Budget Process for FY 2001-2002
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. This task was completed at the March Melbourne meetings.
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 goes through its final review, revision and adoption process by the Board at its second quarterly meeting, which is expected to be on June 4, 2001 in Stockhom.
The calendar of 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.
January 25 - FY2000-2001 Midyear Budget
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