How should I spend my two grand?

I can either annex the former capital (goodbye, Genghis) I'm currently puppeting and buy a lot of buildings to make it a decent city.

Or grab two CS's as allies.

What do you think?

Depends on the answers to a host of questions, including:

Which 2 CSs, and what will that do for you? Have you taken any Patronage policies? What ideology have you chosen? How late in the game is it? What victory are you pursuing? What buildings is the puppeted capital missing? How many non-puppet cities do you already have? Are they missing buildings that you need (e.g., are you 6 turns from Plastics and want/need instant labs when Plastics pops)?

Annex the city, hard build a courthouse and bring on the culture CS's!!!

I mean, it's a false choice. You've got beer. You've got liquor. You don't have to choose!