Squalor is generally lessened by prevention of the population getting to such higher proportions. Growth buildings probably should be destroyed to help the population growth go down and, although you can build farms, which are indestructible, it may be wise to observe the farming base rate as shown on the advanced settlement details scroll. That base rate is a massive contributor to growth and adding to it with something which cannot later be removed could be quite devastating.

If your struggling with the distance to capital penalty, if you haven't tried it already, you do have the ability to move your capital. Simply go to the settlement details scroll and, among the buttons in the bottom left hand corner, select the option to move your capital to that settlement. If you make the capital as central as possible, this allows you to keep everybody as happy as possible.



BTW, when you exterminate a settlement and you notice at face value a higher income, you are actually getting a lower income than you would without the extermination. Tax income is calculated based upon the number of people based in a settlement, but the way the game calculates military upkeep, the larger the population the more they pay to the armed forces. This gives the illusion of the largest settlements loosing money when actually they are your biggest earners. In the game it is actually impossible for a settlement to loose money.

A better view of real settlement wealth can be gained by going to the advanced settlement details scroll (the one with the pictograms) by activating one of the buttons on the bottom left hand corner of the standard settlement details scroll. On the income section, add up all the factors on the "+" side and then subtract all of the "-" factors excluding military upkeep.