Depends on how volatile the situation is there regarding security. If you expect heavy military action against the settlement build a castle, if not build a city. If you think squalor will also be an issue (unlikely considering its proximity to your captial), it may be a reason to edge more towards a castle. Remember you can always keep it a castle for a decade or two while you strength the garrison and build up the population and infrastrucure, and then convert it to a city.
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