Chip seal, aka seal coat is not often used on city streets because it will not hold up to slow moving, tight turning traffic such as at intersections or driveways. Tire friction will shear the rock off the asphalt and you will be left with a pile of gravel and a shiny black spot. It is only appropriate on straight sections. However, I expect to see more of it on city streets with improved asphalt binders and tighter agency budgets.
Chip seal vs. hot mix overlay is not really a valid comparison. They serve a different purpose and the cost of construction is dramatically different. Seal coat is a preventive maintenance measure and overlay is more of a rehab.
The reason chip seal is considered a safety improvement is due primarily to wet weather skid resistance. Crushed rock is used rather than smooth gravel for this and other reasons.
Large aggregate is more durable, and it allows more asphalt to be applied to the roadway surface which improves the length of time before the next required maintenance.
There are mountains of research and evidence proving the economy and safety of using seal coat as a preventive maintenance. You just won’t win any argument against it. If you knew all the facts and were in control of a budget yourself, you would probably recommend an aggressive seal coat program to preserve our state's roads. That’s why TxDOT does it.
If I were going to try to improve the situation for cyclist, I would NOT try to argue for the elimination of seal coat, because it won't happen. What I would do is ask your highway engineers (they work for you, the tax payer) to consider using a smaller aggregate for the shoulders. I think it would make sense for cyclist and engineers. For the main driving lanes I would use high rate of asphalt and a large, durable aggregate. For the shoulders, I would use a lower rate of asphalt and a smaller aggregate. In TxDOT lingo that would be grade 4 (roughly 3/8" rock) for main lanes and grade 5 (roughly 1/4" or smaller) for shoulders. Smaller rock and less asphalt = lower cost. More complicated construction and materials = higher costs. The two together could average out?
There is a safety argument for this as well. I often see cyclist riding the smooth wheel path to avoid the rougher but safer shoulders. It would obviously be better for everyone to get the cyclist onto the shoulder. (I’m talking highways, not city streets)
I used to ride a loop that included bits of state highway with terribly rough seal coat, and other sections of county roads that had chip seal with smaller aggregate. The county road section was chip seal, but was very smooth and comfortable. Seal coat isn't the problem, it's the size of the rock.
Hope that helps.