Where did the term slush fund come from? Well blame the Navy. Actually sailors in general.Sailors ate a lot of pork on board. Anyone who has cooked pork or really any kind of meat knows there is a lot of fat and grease left over. This was called "slush." All of this fat/grease was collected in barrels while at sea. When the ship got to a port, they sold the barrels to local merchants who used tallow in things like candles and soap. Depending on how long it had been, this could fetch a nice sum. The resulting funds were to be used for the benefit of the ship. Hence the term "slush fund." Things that were not considered necessities but were nice to have on board to make a long voyage a little easier.
In the US Navy, the Executive Officer had complete control over how this money was spent.A good XO would use this money wisely for the whole crew - books, or maybe a nicer holiday meal. A bad XO would benefit himself or at least make sure the creature comforts he purchased were more along the lines of his wants than what the crew in general needed. Say a whole case of gummy bears for the ship store because he liked gummy bears*, or better wine for the officer's mess (before September 1862, of course, thanks Senator Grimes).
By the early part of the 20th Century a "slush fund" came to mean any sort of extra funds that were discretionary as to spending. Today a slush fund is one used by politicians to fund certain projects that will make influential constituents happy, regardless of the impact on the general populace. Or a fund used by donors to essentially bribe politicians into supporting the donor's pet project.
*Yes I know they didn't have gummy bears in the 19th Century, well not as we know them today, but this comment was based on true story from the 1980s.
Sources:
Showing the Flag, the Civil War Naval Diary of Moses Safford by Lawrence J. Bopp and Stephen R. Bockmiller
Merriam-Webster Dictionary Online