I can't say anything respective the buggy parts, but for strategy I say it's absolutely after your personal liking whether you leave this settlement as an independant state (that's what they think they are after all) or integrate it more into your empire with a type 3 / 2 / 1 government. Of course changing government from lvl 4 to lvl 1 isn't very feasable, and to lvl 2 at least has to go hand in hand with some rebellion in most cases.
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