Well, the simple answer is that this effect  IS   intended.         

For a long, interesting, discussion of this subject,  you really need to go back and read the Discussion thread, started by Jordanmchavez, on April 28, entitled:  "Razing a city permanently destroys all terrain fertility". 

What is kinda annoying, is that there were 35 replies to this Discussion thread, and the vast majority of respondents expressed their dis-satisfaction with this game mechanic (although there are reportedly a couple of late game magic spells that can (maybe!) reverse the effect).  However, this discussion ocurred during the v0.913 and v0.914 periods of Beta 3; and the game developers did  not  see fit to change the game mechanic when the current update (v0.915) was released.  (Incidently, if you think this is crazy unrealistic, please especially read my two replies (#28, and #29) in the earlier thread.)

For my part, I still wish we could get this changed; but at this point, I do not expect it to be changed.  For the record, I still think that E:FE is a great game! ... but as Mick Jagger once said:  "... you can't always get what you want ..." .    

Mick Jagger also said "... God gave me everything I wanted ..." (although the first song was infinity superior)

Scorched earth is a terrible idea ... and I'll bet it's a bug-feature more than a feature. Personally, I think the current system is a little limited anyway, but thats an argument for a later version of the game. 

Just what are they doing in Beta 4 for the city building system? Any substantiated rumors? I hope they are thinking single tile or single-tile/multi-tile hybrids ... 

(1) Agree Completely -- first song infinitely superior ... and on a happy note, the rest of the quoted line went on: " ... but you just might find, that you get what you need! "

(2) Agree Completely -- scorched earth, following razing a city, is annoying, artificially limiting, and stupidly unrealistic.  I respectfully refer back again to my replies #28 & #29 to the earlier thread.  In particular, let's lay to rest the fallacious (essentially mythical) "Carthage" example!

(3) Wouldn't call them "substantial rumors" exactly; but there have been several, convincing, rumors that a single tile city model is under development.  Personally, I would seriously bet that is what we will see in the Beta 4.

One last point: I heartily concur with KingHobbit's closing sentiment.  Welcome to the party CMarval, et. al. !   Goodness knows, the E:FE beta process can be annoying at times, but it can also be great fun! ... It's a real roller-coaster ride !

[ Later Edit ]   Oops, last, "last point" -- On another optimistic note:  Malsqueek could be right -- Since Frogboy has said that "civilization building"  (including city building) will be the major emphasis under the Beta 4, we can't rule out the possibility that they will  "get this right"  in the end.