The AI doesn't know that it gets benefits from City States only if it's settles close, currently. I plan to change it so that it knows when it's a good idea to adopt the civic, but I won't make the civic or plans to adopt the civic change settlement behaviour. It's meant to accomodate civs that already settle closely and not the other way around.Partially, this is why I hate, hate, hate that people are seemingly trying to make City States something viable.
Because it does have it's uses for a player, but ultimately, it's encouraging bad behavior on part of the AIs as well.
Having cities 1-2 tiles from one another, sometimes overlapping in the BFC by standards that would make a lot of players cringe.