The week that City Council Speaker Christine Quinn released her third budget response she also admitted that previous budgets, going back to at least 2001, were riddled with allocations to fictitious organizations .

After the charges appeared, Quinn responded that she did not budget the money herself. She blamed the problem on her staff and said she was taking immediate steps to remedy the situation. Her staff chimed in that ultimately the funding always ended up supporting worthwhile causes -- groups like the American Performing Arts Collaborative or the City University of New York's project Bridge to Medicine.

Though the speaker's office has attempted to stay ahead of the story since it broke Thursday, there remains many more questions than answers. Among them are whether this was simply a way to give city officials some leeway over a small percentage of the multi-billion dollar budget, or whether it was a cover up for political favors and arm-twisting by a speaker who has made government reform a hallmark of her tenure.

Many have wondered how a practice of putting aside funds for unanticipated expenses turned into accounts labeled with nonexistent organizations. And some question how a speaker who is known to micromanage her staff could have let this "slip" by her.

This is not likely to fade away from the city's newspapers and channels anytime soon since two investigations -- one by the city's Department of Investigation another by the U.S. Attorney's office in Manhattan -- are underway and more are being called for.

A Translucent Agenda

The irony here is at least an inch thick.

A reform-minded speaker, whose agenda called for opening up the budget process and creating more transparency in the City Council, has been thrust into a scandal over that very same budget process and its secret fund.

City hall observers and council members, even Quinn's opponents, such as Councilmember Charles Barron, were shocked by the budgetary revelation first reported in the New York Post on Thursday.

"I guess we just assumed that the speaker had some money, had some discretion, to dole around," said Barron. "I don't think any of us had a clue."

Since she became speaker in January 2006, Quinn has attempted to open up the budget process. She required attaching council members' names to their individual member items, allowing the public to see which member was pushing for what in the council's expense budget. In her budget address on Tuesday, Quinn promised to create the same transparency with the council's capital budget -- attaching names to particular items.

Quinn denies that she personally created the phony organizations and directed funding toward them for political favors. The council's press office, however, has had no explanation as to when these groups were formed and who formed them.

They say since Quinn found out about the practice, now two senior Council Finance Department staffers have left the council. They also contend this practice has a long history in city government, going back to at least the beginning of the decade.

A Matter of Precedent

Officials contend it is not unusual to hoard money in the city budget for unexpected expenses or mid-year fixes. In a nearly $60 billion budget, items cannot always be exact.

The city calls the unallocated accounts "holding codes" -- or ambiguous line items to be doled out to certain projects after budget approval or as needed throughout the fiscal year.

Even in the fiscal year 2009 budget, the Department of Education, according to the council's budget response, has $1.12 billion in holding codes. The city's Law Department could not immediately say whether this practice violated the City Charter.

Former Speaker Peter Vallone Sr., who led the council from 1986 to 2001, said during his tenure the body would hold money under certain agency's holding codes then modify the budget and distribute the money at a later date. They would do this transparently, he said, holding public hearings.

"I don’t know why you would need a fake organization," said Vallone. Ultimately, though, he said, "The point is where was the money used?"

In the spring of 2007, the speaker's office contends, Quinn ordered her staff to halt the "holding code" practice. Several months later, she found out it had not stopped and instead was continuing through phantom organizations.

The council could not provide by our deadline the holding codes that were used before the speaker ordered them to halt the process.

Following the Paper Trail

The city's budget process is long and intricate. Nonprofits have to fill out mounds of paperwork, and the City Council is charged with meticulously reviewing it.

But that seems not to have been done here.

City Council officials could not say whether documents for these fictitious organizations existed, and our request for copies is pending.

The council has distributed documents showing where the $4.7 million initially earmarked to the fake groups ended up in fiscal year 2007 and fiscal year 2008. The largest allocation went to Friends of the Highline, a group converting an elevated rail track to a park in Quinn's district. Other groups that received funding resemble the council's usual budget line items, from little leagues to arts alliances.

A review of the allocations reveals that $3.74 million, or nearly 80 percent, is not attributed to a specific council member. Those projects, 66 in total, do not have a main sponsor, which is in direct contrast to Quinn's requirement that council members' names be listed with such items.

In the documents, 14 members are identified as receiving funds originally destined for the phantom accounts, including Finance Chair David Weprin, who did not return phone calls.

Some would say the lack of attribution raises concern about the intent of the funding. "Often times council members vote a certain way because they are promised certain things for their district," said Barron.

Some City Hall observers said the phantom groups could act as untapped accounts, which the speaker could dole out to reward members at her discretion.

Council members said some of the appropriations seem to be budget fixes. Barron has more than $50,000 in 12 items for fiscal year 2007, all of which were funded through cash initially earmarked in fake organizations. Barron said, and many would agree, there was no way he was getting political favors from the speaker.

"If they use any money for me and Tony (Avella), it was a mistake they were trying to correct," Barron said.

A New Budget Year

The City Council is about to embark on this fiscal year's budget negotiations. The mayor's executive budget is due out at the end of the month, and from there wheeling and dealing will begin. Quinn is slated to play a key role in the discussions over how to spend city money as the days of rising revenues and fat surpluses appear to be coming to an end.

Some question, however, whether Quinn can move on politically from this scandal and whether her mayoral hopes have now been dashed.

A statement from the Citizen Budgets Commission, a fiscal watchdog, reads: "All elected officials bear responsibility for the budgets that they adopt, and Speaker Quinn, in particular, should be held accountable for the City Council’s fiscal practices. She must now rebuild the public’s confidence in the truthfulness of the Council’s budget and its future integrity."

Others have called for investigations into the matter, including councilmember and mayoral candidate Tony Avella. Citizens Union, the sister organization of Gotham Gazette's publisher, has called for the speaker to release any and all information relevant to the scandal and is urging greater oversight of council member items to ensure their legitimacy.