I know a lot of anons like this theory so I'm going to get some heat for saying this. But this theory is just dumb.
Every city is incorporated. That's how they establish a local government. Each state has different processes for this. There are things less than a city, like a township that are not yet incorporated. There are also unincorporated areas within the US, where there's no local government other than the county.
Second, gold fringe flags are largely ceremonial and would never be used on a ship where it would quickly get destroyed by the wind. There is no law or code about its use in the US.
https://slate.com/news-and-politics/2005/11/how-do-you-start-your-own-town.html
https://answers.yahoo.com/question/index?qid=20080122204700AANW8oD