I don't know if that argument works economically. EA has to support something like 100,000 simultaneous users, so if the server side needs more than one PC worth per user then their EC2 bill would be off the charts. (I see nwh made this argument earlier.) I suspect that inactive cities in a region are simulated with a lower level of detail.
Since players can run at different speeds, I'm going to say that inactive cities are simply not run and exist in a paused state. They probably produce/consume resources at a steady rate from their neighbouring cities, based on a statistical average.
EA does not have to simulate the cities now, each cities are already simulated/view only by the owner of that cities. EA only have to relay information between cities.
But they would have to do it if you can actually control other cities in the regions. If you play one city and then switch to another city for, say, 1 game year, what's going to happen to your previous city? Does its time stop? Would AI have to take good care of all cities?
