The fund capital shall be distributed to the incorporated municipalities of the state and shall be paid on April 15 of the fiscal year for which each annual appropriation is made as follows:
(1) Each incorporated municipality in the state with a population of less than 1,000 shall receive $1,000; each incorporated municipality in the state with a population of 1,000 or more shall receive $2,500.
(2) The residue of the portion to be paid to the incorporated municipalities in the state shall be distributed among the incorporated municipalities in the state on the basis of the ratio of the population of each such municipality to the total population of all the incorporated municipalities in the state according to the next preceding federal decennial census, or in the case of a municipality incorporated subsequent to the said federal decennial census, the official census taken upon incorporation.
Each municipality shall upon receipt of its share deposit same in a special account and shall not commingle such funds with other revenues of the municipality. The share of each municipality shall be expended solely for capital improvements and the renovation of capital improvements determined by the municipal governing body. The governing body of each municipality may use such share to finance bond or warrant issues for capital improvements and the renovation of capital improvements and may pledge such share to retire the principal and interest of such bonds or warrants.