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1) Is the Loyalty Penalty for failing the check to reduce unrest for the Royal Enforcer permanent?
2) Can you build terrain improvements in a city hex?
1) Yes (I asked, I will try to find the response)
2) Yes, while there was a restriction in Kingmaker it was removed for Ultimate Campaign. A city takes a small fraction (about 1%) of the area of a hex.
Edit: Found it, here is the link for question 1
Edit 2: found the answer for question 2
- Gauss