How the funds work

Now you know what a budget is. Here's the next thing that confuses almost everyone: the City doesn't have one bank account. It has many. Each one is called a fund, and they don't all behave the same way.

This is the single most common source of confusion when residents read a City budget. The numbers don't add up the way you'd expect, money seems to move around for no obvious reason, and the City can be running a “deficit” while sitting on what looks like a pile of cash. None of that is sleight of hand — it's just how the rules work.

The envelope idea

Think of how some households budget. You put $400 in an envelope marked “groceries,” $200 in one marked “utilities,” $150 in one marked “kids' activities.” Once the money is in the envelope, it's only supposed to be used for that thing. You wouldn't pay the electric bill out of the groceries envelope.

A city budget works almost exactly like that. The City has dozens of envelopes — funds — and each one is meant for a specific purpose. Some are legally required by California state law. Some come from grants where the funder says “you can only use this on X.” Some come from voter-approved measures where the voters specified what the money is for. The City can't just move money between envelopes whenever it wants.

The General Fund is the main envelope

The General Fundis the only envelope the City has wide discretion over. It collects the money that doesn't have strings attached — most property taxes, hotel taxes, sales tax, fees for services — and the Council can decide what to spend it on.

Most of what residents care about runs through the General Fund: police, library, recreation programs, planning, building inspection, parks maintenance, the City Manager's Office. About 63% of every General Fund dollar pays people (salaries and benefits), and the rest pays for services, supplies, and ongoing operations.

For FY 2026-27, the General Fund is planned at about $88 million in revenue and $89.8 million in expense. That's the $1.8 million deficit you'll see referenced throughout the rest of this site.

Everything else is mostly restricted

The City has six other categories of funds, and they're mostly not discretionary. The ones that matter most:

• Special Revenue Fundshold money that came in with a specific purpose attached — Measure W (voter-approved county tax, transportation only), Transportation Impact Fees (from developers, transportation only), the Below-Market-Rate Housing Fund (affordable housing only), and the Belle Haven Community Campus Fund. The City legally cannot spend this money outside its stated purpose, even by unanimous Council vote.
• Capital Project Fundshold money set aside for large infrastructure — streets, water mains, parks, public buildings. The biggest is the General Capital Improvement Fund (Fund 501), where General Fund money moves to when the Council funds a capital project.
• Enterprise Fundsare for services run like a business, paid for by the people who use them. Menlo Park's water utility is the main one: water rates fund water service and can't be diverted to, say, the library.
• Internal Service Fundscover shared services the City provides to its own departments — IT, vehicles, facilities — with each department paying an internal charge.
• Debt Service Funds hold the money used to pay down bonds and loans.
• Private Purpose Trust Funds hold money the City is keeping for someone else, like leftover funds from the dissolved redevelopment agency. These aren't really the City's money.

Why transfers happen

If you read the budget carefully, you'll see line items like “Transfer to Other Funds” — about $4.2 million in the FY 2027 General Fund. This is the General Fund handing money to other funds, mostly to the General Capital Improvement Fund so capital projects can be paid for. Routing money this way keeps multi-year projects easy to track and satisfies legal segregation rules (for example, when bond proceeds are involved). Council recently directed staff to reduce the FY 2026-27 transfer to $3.9 million as one piece of closing the General Fund deficit.

The investment portfolio is a separate thing

The City holds a portfolio of investments — money it hasn't spent yet, parked in safe instruments like government and corporate bonds and the state's pooled cash account. The most recent figure reported to Council, on May 12, 2026, was $213.3 million as of December 31, 2025. The Finance and Audit Commission reviews this portfolio every quarter.

That number is nota separate pot of money on top of the funds. It's the cash position of all the funds combined, sitting in investments while it waits to be spent — grant money received but not yet spent, the General Fund's working cash, reserves, unspent bond proceeds, impact fees collected but not yet committed. What it earns gets allocated back to each fund in proportion to its share of the pooled cash. For the quarter ending December 31, 2025, the portfolio yielded 4.04% against a two-year Treasury benchmark of 1.81%.

“Flush restricted funds, depleted General Fund”

This is the part that frustrates a lot of residents, reasonably. Here is the FY 2026-27 budget across all funds:

So why doesn't the City just take some of the surplus in Special Revenue Funds and close the General Fund gap? Because it can't. That's the whole point of restricted funds. The Measure W money has to go to transportation. The impact fees have to go to the projects in the nexus study. The BMR Housing Fund has to go to affordable housing. The water revenue has to fund water. None of it is available for police patrols, library hours, or general operating shortfalls.

The practical implication: when you read that Menlo Park has a structural General Fund deficit, the surplus in other funds is not really relief. The City has more than enough to run its water utility and to build the capital projects the impact fees were collected for. But it has less than it needs for its general operating services — and those are exactly what the June 9 conversation is about.