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If you tear the rally spot down, will the city still generate loyalty? (does the r.s generate loyalty or is it some other factor? I know the fixed rate thing jw about the rs

The rally point is useful only for managing troops, last I checked. I don't know where you got this info from. However, if you tear down your rally point or I ballista it down, you won't be able to attack, withdraw, or send support until you rebuild.