(1) Except as otherwise provided in subsection (2) and section 21(9), the local governmental unit shall use the amount disbursed to the local governmental unit pursuant to section 21(4)(a) and (b) only to fund capital improvements identified in the spending plan that the local governmental unit submitted to the authority.

    (2) Upon approval of the authority, the local governmental unit may utilize the funds described in subsection (1) for any purpose authorized under this act.