March 2000 ICANN Meeting in Cairo:

ICANN Budget for 2000-2001 Fiscal Year

Internet Corporation for Assigned Names and Numbers
Staff Working Paper - FY00-01 Preliminary Budget

I. Introduction
II. Background
III. Budget Process for FY 2000-2001
IV. Budget Priorities for FY2000-2001
V. Preliminary Budget Schedule A and Notes for FY2000-2001
Schedule A - Staff Working Paper - FY 2000-2001 Preliminary Budget
VI. Budget Issues for FY2000-2001

I. Introduction

This staff paper has been prepared to provide background materials for discussion of ICANN's next fiscal year budget at the public forum and Board meetings that will be held in Cairo on March 9 and 10, 2000. These discussions are the first step in the Board's consideration and adoption of a budget for the next fiscal year. A revised budget process has been adopted by the Board for FY00-01 and is described in Section III of this paper. The planned budget process 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, 2000, as required by ICANN Bylaws Article XI, section 4. Section VI of this staff paper asks a number of questions about ICANN budget issues on which the public is invited to comment. An electronic public comment forum on the budget is available on the ICANN website.

II. Background

Fiscal year 2000-2001 will be the second full budget year for the corporation and the first in which the preparation of the budget is based on significant operating experience. During the startup fiscal period from October, 1998, through June, 1999, the corporation was supported primarily by donations. Total revenue for the eight months was $708,000, with total expenses of $1,466,637. An operating loss of $758,767 was carried forward to the current fiscal year. During the summer of 1999, unsecured loans were obtained by the corporation in the total amount of $1.025 million to offset the prior year loss and provide additional working capital. Additional accounting detail on the startup period is available at
<http://www.icann.org/financials/financial-report-fye-30jun99.htm>. (All dollar amounts in this staff paper are in U.S. Dollars.)

A budget for fiscal year 1999-2000 was developed by the staff and posted for public comment in April, 1999. A revised version was adopted by the Board at its Berlin meeting on May 27, 1999. Following consideration of a mid-year financial report in February, 2000, the Board revised the FY99-00 budget to bring it in line with current projections of revenue and expense. The revised budget projects total revenue of $5.225 million, total expense and equipment acquisition of $3.390 million, and a resulting contribution to prior year loss, loan repayments and operating reserve of $1.835 million. See <http://www.icann.org/financials/budget-fy99-00-27may99.htm> and
<http://www.icann.org/financials/financial-report-fpe-31dec99.htm>.

In July, 1999, the Board directed the President to convene a Task Force on Funding (TFF) composed of representatives of Domain Name and Address Registries and Registrars with the objective of reviewing ICANN budgetary needs and making recommendations to the Board. A final draft of the TFF report was published in October, 1999, and its recommendations were adopted by the Board at its Los Angeles meeting on November 4, 1999. See <http://www.icann.org/tff/tff.htm>.

In November, 1999, ICANN executed a series of agreements with the United States Department of Commerce and with Network Solutions, Inc. that provide, among other things, for specified payments to ICANN from the NSI operated Registry for the .com, .net and .org domains, and from NSI acting as a competitive Registrar in those same domains. These payments are projected to reach a total amount in the current year of $2.250 million. This amount is included in the schedule accompanying the TFF report and in the revised budget for FY99-00. See <http://www.icann.org/nsi/nsi-agreements.htm>.

III. Budget Process for FY2000-2001

Included in the October 1999 report of the Task Force on Funding are the following two recommendations:

"The TFF believes that ICANN's budget process needs to be improved in future iterations to give the entities providing the funds -- the domain name and address registries and registrars -- a formal role in the budgeting process. The goal of the Task Force's recommendations in this area is greater accountability, predictability, participation, and transparency in the budgeting process.

" In addition to the entities directly contributing the funds to ICANN's cost-recovery program, the rest of the ICANN community must have a fair opportunity to review the proposed budget and participate in the consensus-development process. The Task Force recommends that ICANN require that the proposed annual budget be placed on the agenda for at least one Public Forum prior to adoption."

As noted above, these recommendations have been adopted by the Board and will be used to guide the staff in developing the next fiscal year's budget. The following specific actions are planned:

• Review the financial report for the first six months of this fiscal year and adopt a revised current year budget that becomes the base for budget planning for next year. (This action was completed by the Board at its February 10 meeting.)
• Convene the consultative group on the budget process called for in the TFF Report, which was approved by the Board in Los Angeles. (This action has commenced, with participation from the Name and Address Registries and Registrars.)
• Prepare a staff document on budget priorities and proposed revisions from this fiscal year to next, and review it with the consultative group, the Board, and with the public in Cairo. (This staff paper is the first of a series of papers that will underlie the budget process and is being posted for public comment in advance of the Cairo meeting.)
• Prepare a draft budget for next year based on the results of the interactions with the public and with the consultative group, and review it with the Board in April.
• Publish the proposed FY00-01 budget on the ICANN Web site in April for a 30 day public comment period.
• Adopt the budget at either the May or June Board meeting, depending on the outcome of public comment and other consultations.

IV. Budget Priorities for FY2000-2001

IV.1 Review of current year budget priorities.

The May 1999 budget for FY99-00, the current fiscal year, established the following goals and related resource commitments:

• completion of ICANN organizational arrangements, such as the seating of the permanent members of the Board of Directors and recruiting of a permanent President and Chief Executive Officer.
• completion of contractual arrangements with registry-administrators
• continuing accreditation of registrars for the .com, .net and .org domains
• study, recommendations and implementation of policy decisions concerning domain names, trademarks and the related provisions of the WIPO study
• study, recommendations and implementation of policy decisions concerning expansion of the Top Level Domain (TLD) name space
• study, recommendations and implementation of updated arrangements for Internet root servers.
• review and adoption, after public comment and possible revision, of recommendations received from ICANN Support Organizations and Advisory Committees

At midyear, the following progress toward these goals has been made:

• Nine Directors selected by Supporting Organizations were seated in November. An At Large Membership implementation project has been created and will have begun accepting applications for At Large Membership by the time of the Cairo meeting. The Board has set an agenda item for the Cairo meeting to take additional policy actions on At Large Membership and elections. The Board has established a Search Committee for a permanent President and Chief Executive Officer.
• The Board has completed agreements with Network Solutions covering its operation of the registry for .com, .net and .org, and its accreditation as a competitive registrar for the same domains. The ICANN staff is in discussions with operators of the IP Address Registries and with operators of ccTLD Registries/Registrars on agreements with those organizations.
• ICANN continues an active accreditation program for .com, .net and .org, with more than 100 companies having successfully completed the accreditation process.
• Following adoption of a Uniform Dispute Resolution policy in August, 1999, ICANN has implemented a program that currently has three providers of dispute services and more than one-hundred disputes currently in process before panels convened under the ICANN UDRP policy and procedures.
• A Working Group of the ICANN Domain Name Supporting Organization (DNSO) has produced a status report and recommendations on gTLD issues for the DNSO Names Council to consider in the near future. The ICANN Board has scheduled a study session on gTLD issues at its forthcoming Cairo Board meeting.
• The ICANN Root Server System Advisory Committee has met several times and made recommendations to the Board on technical improvements to the architecture of the root server system. These recommendations are supported by the operators of the thirteen root servers and are in the process of implementation. ICANN staff, the root operators and the U.S. Department of Commerce are working together to establish a work schedule and timeline for policy, administrative and technical changes to the root server system to meet the objectives established by the U.S. Government in the DNS White Paper.
• Significant actions taken by ICANN Supporting Organizations and Advisory Committees include:
  • The DNSO Names Council, following study of a referral to it by the ICANN Board of recommendations contained in the WIPO report on trademarks and domain names, recommended to the Board the adoption of principles related to a uniform dispute resolution policy. It has under further study other portions of the WIPO report dealing with famous names and gTLD expansion.
  • The Address Council has been organized under the terms of the ASO Memorandum of Understanding and intends to hold its first face to face meeting in May 2000.
  • The Protocol Council has been organized under the terms of the PSO Memorandum of Understanding and does not currently have a face to face meeting scheduled.
  • The Independent Review Advisory Committee has completed its work and the ICANN Board is expected to implement its recommendations at the Cairo meeting.
  • The Audit Committee has completed work on an Audit Committee charter and recommended its adoption by the Board at the Cairo meeting.
  • The Reconsideration Committee has met several times to consider requests for reconsideration of Board actions and forwarded recommendations on the disposition of a number of requests to the Board. The substance of the recommendations and the related Board actions are documented in the minutes of several Board meetings which are posted on the ICANN Web site.
  • The Government Advisory Committee has met several times and recently forwarded to the Board a document concerning Principles for Delegation and Administration of ccTLDs. The Board will consider the GAC Principles as part of its Cairo agenda item dealing with ccTLD issues.
  • Following a recommendation of its original Membership Advisory Committee, which has completed work and been disbanded, an At Large Membership Implementation Task Force is in the process of being formed and will advise the staff and Board on remaining issues concerning the structure of At Large Membership, elections, voting, outreach, etc.

IV.2 Proposed Budget Priorities for FY2000-2001

Now that ICANN is working within an established budget process, the priorities for each new budget period will likely be a mix 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 III above.

IV.2.A. General and Continuing Priorities

• Provide timely and responsive staff support to the policy-making activities of the Board, its Supporting Organization Councils and other advisory bodies as needed, including policy implementation, preparation of legal agreements, etc.
• Meet operational commitments of service programs, including IANA, root servers, registrar accreditation, membership, etc.
• Conduct an active education and outreach program that supports public participation in ICANN policy-making activities, including public meetings, electronic forums, hardcopy publications, etc.
• Carry out the general management and administrative responsibilities of the corporation in an efficient and cost effective manner.

IV.2.B. Specific Priorities for FY00-01

• Complete Board policy-making and related implementation actions for gTLD registries and registrars.
• Complete Board policy-making and related implementation actions on revisions to ICP-1 dealing with delegation and administration of ccTLDs.
• Complete implementation work on At Large Membership, including Board policy actions taken in Cairo, first and second stage elections, etc.
• Complete the work plan for improvements to the root server system and carry out necessary implementation steps.
• Complete work necessary to fulfill ICANN obligations under the Department of Commerce/ICANN MOU/JPA transition agreement.
• Conduct scheduled program reviews for Supporting Organizations and other advisory bodies and make any revisions to ICANN organizational structure found necessary by the Board as a result of the reviews.
• Complete staff recruiting for positions authorized in the approved budget.

V. Preliminary FY2000-2001 Budget Schedule A and Notes

Budget Schedule A below contains a preliminary version of a base budget for FY00-01. The numbers have been derived from the revised budget for the current fiscal year, shown in the left hand column, with adjustments to incorporate known year to year budget changes as described in the Schedule A 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. 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.

Notes to Budget Schedule A dated 3/6/00

(1) Income. Pending further discussion with the Registry/Registrar Budget Group (RRBG), the amounts and proportionate shares of income for continuing expenses from among the three major income sources have been left unchanged from this fiscal year to the next fiscal year. There is a decrease in Special Project Grants because no grant information for next year is available at this time. Contributions are projected to decline as a result of ICANN's continuing income sources having been established during the current fiscal year. The net of these changes is a year to year decrease in income from $5.225 million to $4.825 million, or $400,000.

(2) Expense. Overall expense, including equipment acquisition, is projected to increase from $3.390 million to $3.830 million, or $440,000. The increase is primarily the result of completing the recruiting of staff to fill positions authorized in the budget. Additional detail on specific expense line items is included below.

(3) Operating surplus. The preliminary FY00-01 income and expense amounts produce a surplus of $995,000 at June 30, 2001. This is a decline of $840,000 from the comparable amount of $1.835 million in the current fiscal year.

(4) Reserves. If the revised budget plan for the current fiscal year is realized, ICANN will end the year with a surplus of income over expense of $1.835 million. Uses of the surplus include the repayment of short term loans in the amount of $1.025 million, and a contribution to the operating reserve of $810,000. At the beginning of the year, the reserve account had a negative balance of $759,000, so the net effect is that at the end of the year there would be a small positive balance of $51,000 carried forward to the new budget. The preliminary base budget surplus of $995,000 in the next fiscal year would increase the yearend operating reserve balance to $1.046 million, or approximately one-third of a year's operating expense. The Board has established a financial goal of creating an operating reserve equal to one year's expenses, and doing so over a period of several years through budgeted surpluses.

(5) Detail on Expense Line Items.

(a) Staffing. The approved organization plan for ICANN currently includes 13.3 full time equivalent positions. 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, 2000 is as follows:

(b) Personnel. This category includes all salary, wage, benefit and consulting expenses. 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:

Assuming that the approved staff positions are filled at the midpoint of existing ranges, total personnel costs are projected at $1.476 million. This amount may vary up or down based on actual recruiting experience in the course of the fiscal year.

(c) Professional & Technical Services. This category includes agreements for legal services, public affairs and education, and computer systems consulting. The projected amount of $960,000 is a reduction from the current year, which results from filling some of these requirements from inhouse staff.

(d) Board and Public Meetings. This category covers expenses associated with the Board's quarterly public forums and face to face meetings, as well as monthly teleconferences. Included are travel, hotel, meeting room, technical and administrative support, etc. The projected amount of $600,000 is for four meetings and is a small increase from the current year to reflect rising travel costs and the increase in the size of the Board from nine to nineteen members.

(e) 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 increase to $408,000 reflects the increase in activities of Supporting Organization Councils, Board committees, and the filling of vacant staff positions.

(f) Administration. This category includes costs of operation of the headquarters office, purchased accounting and administrative services, insurance, utilities, computer and office systems, equipment depreciation and network connectivity. The reduction to $336,000 reflects a shift in a number of expense items from purchased to inhouse services.

(g) Special Projects. In the current year, the Markle Foundation grant is supporting part of ICANN's At Large Membership implementation costs in the amount of $200,000. At this time, no follow on special project expenses have been planned. If continuing special project expenses are incurred, it is expected that offsetting grant income will be available to cover them.

VI. Budget Issues for FY2000-2001

The following issues, presented as questions, are among those which the Board and staff will be considering in the development of the budget for FY00-01. Public comment on these issues, and others not listed, is encouraged.

Q. Does the preliminary budget properly support achievement of the basic purposes of ICANN, which are stated in the Articles of Incorporation as:

"... promoting the global public interest in the operational stability of the Internet by (i) coordinating the assignment of Internet technical parameters as needed 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 DNS root server system; and (v) engaging in any other related lawful activity in furtherance of items (i) through (iv)."

Q. Do the proposed general and specific budget priorities for FY00-01 relate appropriately to the purposes of ICANN? Since much of ICANN's ability to meet the stated priorities is based on staff resources, is the projected staffing of 13.3 full time equivalent positions the appropriate level of staff? For what reasons should the number of ICANN staff positions be increased or decreased?

Q. Up to the present time,. it has been assumed that ICANN's Supporting Organizations will conduct their activities without financial support from the central budget, relying instead on donated and volunteer services. Is this a reasonable assumption? If the SO's are to receive financial support in the annual budget, what means should be used to establish appropriate support levels and what income sources should be used to cover the related expense?

Q. Up to the present time, the operation of the thirteen Domain Name System root servers has been subsidized by the organizations hosting the machines. Should this volunteer system be continued in the future, or should some provision be made in the ICANN budget for partial or full support of root server operating costs?

Q. Since ICANN's charter is a global one, the Board has scheduled its quarterly meetings, including public forums, to rotate among the five major geographic regions defined in the Bylaws. Should this practice be continued? To what extent should webcasting and other electronic means be considered an adequate substitute for face to face meeting opportunities?