Revised Proposed Fiscal Year 20032004 Budget
Posted: 17 May 2003
Revised Proposed Budget
Fiscal Year 2003-2004 (FY04)
This Proposed FY04 Budget has been prepared by the President and CEO of ICANN, Paul D. Twomey, building on the Preliminary Budget, prepared by the prior President and CEO, Stuart Lynn, that was posted on 15 March 2003, and is based on community feedback that was received on the Preliminary Budget and on advice received from the ICANN Finance Committee and from the Budget Advisory Group. It is being posted for comment prior to its consideration for adoption by the ICANN Board at its 26 June 2003 meeting as the approved Financial Budget for 2003-2004. To comment on this document, please e-mail to firstname.lastname@example.org.
Allocations were made for several expense items in either the FY2002-2003 base budget or in subsequent resolutions by the Board of Directors, and for various reasons detailed below, the expenses will not be incurred in FY2002-2003. At the time the Proposed Budget for FY2003-2004 was prepared, it was not anticipated that these funds would not be spent in FY2002-2003. To better reflect actual spending in FY2003-2004, we will carry forward these expense items into the FY2003-2004 fiscal budget. While this will increase the total expense budget, the increase is offset by the savings experienced in FY2002-2003 because these funds were not expended have been contributed to reserves. The expense items in FY2003-2004 will be funded by this reserve amount, which totals approximately $250,000. The specific expense items are:
While there is no change to the revenue or expense bottom lines from the Preliminary Budget, there has been a reallocation of the expenses between accounts in the Proposed Budget. This reallocation represents less than 5% of the total proposed expenditures and is due to the following:
This is a year of significant change for ICANN. There will be a new Board of Directors and a new CEO to lead ICANN through its next stages of service to the Internet community. The Proposed Budget builds substantially on the budget requirements imposed as a result of the reforms adopted and incorporated into revised bylaws by the ICANN Board in October 2002 and December 2002. There is still much work to be done in implementing these reforms, but important progress has already occurred.
Subject to certain cautions noted in this document, ICANN's financial performance continues to improve. Furthermore, the budget changes that occurred between FY02 and FY03 have led to increased staffing and funding levels. ICANN now has seven more staff on board than at this time a year ago; this has helped to relieve some of the backlog and to allow ICANN to respond more effectively to service and other demands.
All financial figures in this document are in US$. ICANN's fiscal year runs from July though June, that is, the fiscal year FY04 runs from 1 July 2003 through 30 June 2004.
This Preliminary FY04 Budget builds on the Adopted FY03 Budget primarily by providing for the expansion of ICANN staff and other resources required to meet the obligations required by the approved ICANN reforms as embodied in the bylaws and in board resolutions. It also reflects changes that Paul D. Twomey, as the new President and CEO, will make to the organization over the next fiscal year. The Adopted FY03 Budget represented a meaningful expansion over the Adopted FY02 Budget and provided resources to support pre-reform that is, ICANN 1.0 obligations. This Preliminary FY04 Budget now provides for:
In addition, one new program is proposed, that is, a modest outreach effort to facilitate communications with developing countries in certain regions. This is proposed as a "pilot" program and is more fully described in Appendix 2.
The chair of the Nominating Committee has made two requests for funding under the FY04 budget. The request is for $30,000 for use by the 2004 Nominating Committee, which would start work after the end of the 2003 ICANN Annual meeting. These funds would provide operating expenses to allow the Committee to complete its charter in a timely and efficient fashion. These funds have been included in Column H of the Proposed Budget Schedule.
The chair of the Nominating Committee has also requested that ICANN fund travel to the ICANN meetings for the three members of the GNSO Council and the five members of the ALAC selected by the Nominating Committee. The chair of the Nominating Committee believes that this has a strong bearing on ICANN's continuing ability to attract strong candidates. $90,000 has been included to fund this travel. These funds have been included in Column H of the Proposed Budget Schedule.
To provide the funds for these additional requests, it is proposed to move the ICANN Board meeting currently scheduled for June 2004 to July 2004. The majority of the expenses for this meeting would be budgeted in the FY05. This proposal is contingent upon agreement by our local hosts in Kuala Lumpur.
Resources are also provided to increase ICANN's levels of reserves closer to board-approved levels (see Building the Reserves).
The Adopted FY03 Budget was designed to bring ICANN's level of expenditures more in line with requirements imposed by its mission, as understood at that time. However, as stated in that budget document, that budget did not provide for the effects of reforms designed to improve ICANN's effectiveness, including the financial implications of the revised ICANN Mission and Core Values. The rationale for these reforms have been discussed and commented on extensively in posted documents, and are not repeated here. The reforms have been adopted by the Board and incorporated into the staff organization proposed by the new CEO.
The Proposed Budget includes 2 FTE to support the ccNSO, a policy development position and the ccNSO Secretariat. These are place markers only because the precise requirement cannot be determined at this time. The FY04 Proposed Budget also provides for modest travel and administrative support for the ALAC during its formative stage; and continuing administrative support for teleconferences and travel for the ALAC Liaison to the Board.
One of the challenges in formulating a budget for FY04 at this time is that ICANN is still in discussion with the address registries regarding their mutual relationship. For purposes of this Proposed Budget, the assumption is made that the future will continue along the lines of past practice.
One critical factor driving this Proposed Budget is the continuing need to build ICANN's financial reserves to acceptable levels. Although it appears that a key step forward will have been taken in FY03, there will still be a gap between the actual level of reserves and what is prudent. Furthermore, achieving the projected level of reserves in FY03 is still dependent on ccTLD and RIR contributions, neither of which can as noted above be predicted with certainty at this time.
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 short of budgeted revenues, and as a consequence, budgeted contributions to the reserves do not materialize. As with the Adopted FY03 Budget, this Proposed FY04 Budget attempts to make allowances for this discrepancy by providing for a modest Contribution to Reserves even in the face of a shortfall in the ccTLD contributions. However, realization of this Contribution to Reserves still depends on a modest contribution from the ccTLDs and a contribution from the RIR Address Registries in keeping with past understandings and practices.
Fiscal Year 2003-2004 (FY04) is the fifth full budget year for the corporation, and is based on significant operating experience obtained over the previous three years. It is also based on the transition from ICANN 1.0 to "ICANN 2.0" reflected in the adoption by the ICANN Board of reforms that occurred in October and December 2002.
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 budget cycle for FY04. 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 2002-2003 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 2002, ICANN's President appointed the original members of what is now termed the Budget Advisory Group. The BAG was formed in accordance with the recommendations of the TFF Report. Its membership changes each year 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.
For FY04, the composition of the Budget Advisory Committee (BAG) is different from the previous two years. Previously, the BAG was composed of three representatives from each of the four groups that provide the lion's share of the funding to ICANN: the gTLD registrars constituency, the gTLD registries constituency, the ccTLD constituency, and the RIR address registries. However, there are two changes for the FY04 process:
With this background, the FY03 members of the Budget Advisory Group and their affiliations are:
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 by May 17. For FY04, the Board expects to act on the proposed budget at its meeting on 26 June 2003 in Montreal, Canada.
The ICANN annual budget-development cycle follows three general phases:
The calendar of currently scheduled budget related meetings and teleconferences for the FY04 budget is as follows. The Finance Committee also meets as needed during the budget process in addition to the meetings listed below.
This Proposed Budget 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 continues to be premature to make any assumptions at this time.
The basic philosophy driving this Proposed Budget was discussed earlier in this document (see Budget Issues for FY04). From a workload perspective, this Proposed Budget builds on the ongoing and highlights priorities as follows:
Specific priorities for FY04 that fit within the above framework include:
The proposed new Outreach Program is described in Appendix 2.
Although this budget represents an expansion from previous years, there are many exclusions. For example, it does not provide for:
Four 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." Approval by the Board of the 1999-2000 budget implied that the Board accepted this statement about the appropriate level of reserves.
Prior to FY03, we made no essentially no progress towards this goal. The primary reason is that full budgeted contributions to reserves never materialized, largely because ccTLD revenues always fell considerably short of budgeted levels. Since there are relatively few agreements with ccTLDs, most ccTLDs are under no legal obligation to support ICANN financially. Many generously make voluntary contributions even in the absence of agreements. In aggregate, however, these contributions in the past totaled 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 became an institutionalized reality. Action to address the problem was taken in a new budgeting approach that was adopted in FY03 by raising the planned "contribution to reserves" to a sufficient level 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. That is, the budget was set at a level that anticipated a shortfall in ccTLD contributions yet nevertheless anticipated a reasonable level in the contribution to the reserves (about $840,000).
One important effect of planning for a larger budgeted contribution to reserves and a "shortfall" in ccTLD contributions (it is not a true shortfall since most of these contributions are voluntary) is that the amount that must be allocated between the gTLD and ccTLD registries is correspondingly larger, resulting in a greater burden falling on the shoulders of the gTLD registrars and those ccTLDs under agreement.
Costs allocated to name registries under agreement are now allocated among individual registries according to the number of domain names in those registries (see Appendix 1). The question is often raised, particularly by many ccTLDs, as to whether this is the most fair or the most effective way to allocate costs. Over the past years, this has been a particularly divisive issue that has not been resolved to anyone's satisfaction. Yet no fairer way has been proposed that is generally acceptable. With the potential advent of the ccNSO, it is quite possible that a fresh approach can be initiated, and other ways to address cost allocation, or to adjust current models, can be explored. This is something to which the community can look forward. In the meantime, because of contractual obligations, we must work within the current model.
Even within the current framework, one key question that arises as the effective amount allocated per domain name increases is whether the burden is falling fairly on gTLDs and ccTLDs according to efforts expended in relative support of these registries. In this context, it should be noted that the overall budgetary philosophy that underscores financial support for ICANN is not currently based on any kind of dedicated financial support for dedicated services. Financial support is intended to support the overall mission of ICANN whether specifically directed to the needs of a given funding organization or not. Nevertheless, some reasonable form of proportionality is worthy at least of consideration.
The problem, however, is that relatively few ccTLDs are under agreement (although that number is steadily growing), whereas all gTLD registries and registrars are under agreement. The amounts required to fund ICANN are falling most heavily on the shoulders of gTLD registries/registrars and those ccTLDs under agreement. The more ccTLDs that are under agreement, the further that burden can be shared and the amount per domain name contributed by any given registry under agreement would be reduced. However, there are contractual constraints that may require the assent of existing registries under agreement for any changes to the allocation to go into effect. As such, this Proposed Budget does not reflect any reduction. This will be an issue for the new ccNSO organization to consider.
Column D of the Budget Schedule displayed in the following section summarizes the projected financial performance for the current year, FY03, displayed in the format adopted for these budgeting purposes. This projects an operating surplus (contribution to reserves) of $754,000 compared with a budgeted figure of $843,000, even after allowing for originally unbudgeted expenditures towards the transition to ICANN 2.0 of $446,000. This projected contribution to reserves, however, assumes ccTLD contributions totaling $600,000 and commitments from RIR address registries totaling $535,000, both of which must remain uncertain at this time given that the ccNSO is a work in progress and that relations with the RIRs have not been fully defined, although there are very constructive discussions underway.
Furthermore, there is a difference between contributions to reserves in a budget forecast document, and actual cash reserves. This is because not all commitments are realized in cash, at least in the near-term, but remain on the books as accounts receivable. The level of cash reserves is what counts. However, ICANN's cash reserves are projected to suffice through the beginning of the next fiscal year to meet planned operating obligations, although they would not suffice to meet any unplanned emergencies or to address unusual levels of litigation.
|FY03 Approved Budget||FY03 Year-End Projection without Transition Costs||FY03 Transition Costs||FY03 Year-End Total Projection||FY03 Difference Projection to Budget||FY04 Base Budget (ICANN 1.0)||ICANN 2.0 Additional Costs||Other Additional Costs||Proposed FY04 Budget||Difference FY03 Budget to FY04 Proposed Budget||See Notes in Text|
|Staff Full-Time Equivalents||27||27||6||33||6||27||10||1||38||11||(1)|
|Professional and Technical Services||715||748||20||768||53||450||75||179||704||(11)||(3)|
|Board & Public Meetings||550||750||35||785||235||625||147||90||862||312||(4)|
|Other Travel & Meetings||395||365||13||378||(17)||400||60||60||520||125||(5)|
|Administrative & Systems||978||997||85||1,082||104||1,305||203||215||1,723||745||(6)|
|Subtotal: Base Expenditures||$5,339||$5,188||$325||$5,513||$174||$5,620||$1,506||$694||$7,820||$2,481|
|Public Meetings & Sponsored Events||150||0||0||0||(150)||0||0||0||0||(150)||(7)|
|At Large Activities||200||5||75||80||(120)||0||40||0||40||(160)||(8)|
|Subtotal: Other Expenditures||675||346||75||421||(254)||325||40||70||435||(240)|
|Variable Registry/Registrar Revenues|
|TLD Name Registries/Registrars (with agreements)||3,872||3,872||0||3,872||0||4,400||1,431||170||6,001||2,129||(11)|
|IP Address Registries||535||535||0||535||0||535||0||0||535||0||(12)|
|Subtotal: Variable Registry/Registrar Revenues||$4,407||$4,407||$0||$4,407||$0||$4,935||$1,431||$170||$6,536||$2,129|
|Fixed gTLD Registry Fees (with agreements)|
|New gTLD Initial Fixed Fees||58||57||0||57||(1)||0||0||0||0||(58)||(15)|
|Subtotal: Fixed TLD Registry Fees||$700||$708||$0||$708||$8||$747||$0||$0||$747||$47|
|Other Registry/Registrar Revenues|
|Registrar Accreditation Application Fees||35||73||0||73||38||35||0||0||35||0||(16)|
|Annual Registrar Accreditation Fees||700||1,002||0||1,002||302||900||0||0||900||200||(17)|
|Subtotal: Other Registrar Revenues||$735||$1,075||$0||$1,075||$340||$935||$0||$0||$935||$200|
|Less: Bad Debts or Bad Debt Allowance||(165)||(230)||0||(230)||(65)||(250)||0||0||(250)||(85)||(18)|
|Subtotal: Base Revenues||$5,677||$5,960||$0||$5,960||$283||$6,367||$1,431||$170||$7,968||$2,291|
|ccTLD Voluntary Contributions|
|Fair Share Contribution||2,153||2,153||0||2,153||0||2,756||862||102||3,720||1,567||(19)|
|Less: Estimated difference||(1,353)||(1,532)||0||(1,532)||(179)||(2,256)||(812)||(52)||(3,120)||(1,767)||(20)|
|Subtotal: ccTLD Voluntary Contributions||$800||$621||$0||$621||($179)||$500||$50||$50||$600||($200)|
|Public Meetings Sponsored Events||150||0||0||0||(150)||0||0||0||0||(150)||(21)|
|At Large Activities||200||2||0||2||(198)||0||0||0||0||(200)||(22)|
|Subtotal: Other Revenues||$380||$32||$0||$32||($348)||$50||$0||$0||$50||($330)|
|CONTRIBUTION TO OPERATING RESERVE||$843||$1,079||($400)||$679||($164)||$972||($65)||($544)||$363||$480||(24)|
|New gTLD Operating Reserve|
|Balance Carried Forward||372||372||0||372||0||0||0||0||0||(372)|
|Balance to Be Carried Forward||$0||$0||$0||$0||$0||$0||$0||$0||$0||$0||(25)|
|Dot Org Application Reserve|
|Balance Carried Forward||0||319||0||319||319||78||0||0||78||78|
|Balance to Be Carried Forward||$0||$78||$0||$78||$78||$0||$0||$0||$0||$0||(26)|
The following notes detail the assumptions underlying the Proposed Budget:
The following tables detail the assumptions made regarding domain name
counts for purposes of the Proposed Budget. These assumptions are important
since they form the basis for allocating budgeted revenues among gTLDs
and ccTLDs (see Note (10)). The calculations
actually used for computation of contributions during FY04 will be based
on counts (actual or, where necessary, reasonably estimated) as of 1 July
2003, once those become available.
The Tier 3 ccTLDs counts used for purposes of the Proposed Budget are:
The split between gTLDs and ccTLDs is thus calculated as follows:
The remaining 192 registries (including .museum, and .aero) are assumed to be Tier 1 for purposes of this Proposed Budget.
The purpose of this program is to provide an improved vehicle for ICANN to explain its policies and procedures, and its other activities, to Internet communities in developing countries, including governments. We now do visit many of these countries and give talks at regional meetings, but there is need for a continuing presence "on the ground" to ensure follow-through and continuing coordination. In spite of current visits, communication problems are made more difficult by the frequency with which governments and other players change so there may be little continuity of knowledge.
The proposed Outreach Program would be a pilot program of outreach, education, and communication in which ICANN would hire two part-time Internet activists in two key developing regions who would be resident in each region, that is, "locally" accessible. These outreach "evangelists" would be responsible for fielding queries from governments, institutions, businesses, and individuals in their respective regions, preparing outreach materials suitable for local distribution (online, in print, via CD-ROM, etc.), making presentations at relevant meetings and conferences, and communicating with the media.
Initially, this program would be piloted in two regions of the world. The reason for piloting before committing to an established program is to learn more about what is most effective and what difference such a program makes. This would be a more considered approach before asking the ICANN Board to commit to a more permanent and fully defined program.
To support this one year pilot, as stated above two articulate, knowledgeable communicators would be hired probably as consultants who are actually located in and are from developing countries in the selected regions, charged with making the ICANN process, its policies and activities, and the DNS more fully transparent, less mysterious, more responsive, and more welcoming to Internet communities in developing countries. They could also help to catalyze "at large" activities in the region in support of the ALAC's activities. Subject to Board approval, of course, the first two hires in this prototype effort should be in (a) Africa and (b) either the Pacific Islands or Latin America.
The kinds or problems, for example, that these consultants would address are processes to be followed in effecting a redelegation (the most common problem as more countries wish to "repatriate" their ccTLDs); where to find basic information on ccTLD operations (there is room here for a cooperative educational effort with ISOC, for example); how to address situations where the administrative or technical contact is not doing their job; understanding ICANN and its role in the global community.
The pilot program would have modest costs in its first year of operation, about $220,000, of which $120,000 would be for salaries and benefits, $40,000 for travel (mostly within the region, but with some for training at Marina del Rey), $40,000 for the costs of production of appropriate materials and for mini-workshops (mostly attached to other regional workshops), and $20,000 for administrative costs. These individuals can likely either work out of their homes or collocate for free with some established entity.
This important effort that will support our activities to enter into agreements with ccTLDs in developing countries. ICANN would also collaborate with UNICT and with the ITU-D as appropriate to see to what extent their activities can be beneficial in amplifying the benefits obtained from this effort.
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