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Shelbyville Manhattan and Jebediah's split occurred when Jebediah refused to found a town where you can marry your cousins. Shelbyville considered his cousins "so attractive" he thought the whole point of their journey to found a new town was for that reason. They went their separate ways, and founded their own cities. The cities have been rivals ever since.
Though Jebediah Springfield did not support inbreeding, the Spuckler family live in Springfield instead of Shelbyville.