You have that exactly backwards. The highest power is with the individual in our system of government. The individuals grant powers (through representation) to various "levels" of government. It stands to reason that the "level of government" closest to the people would be the next highest "level" with the "levels" decreasing as one is further removed from the source of power or the people.
Cities exist by the people voting to incorporate them, an incorporation power given by the state. The people create the state. People cannot create a city separate from the state.