It depends on the municipality.

Usually, local laws are enacted by a city council with members elected to represent different areas of a municipality (and potentially some at-large seats). Legislation can come from a number of places: lobbying efforts (for example, there's a current effort for municipalities to ban data center development), citizen groups, specially formed committees (my city just had one to create and propose city charter revisions), or yes, occasionally the council members themselves. Typically, there are open council meetings where citizens can discuss their opinions.

In addition, some rules/regulations/taxes are directly put to a vote of the city/town population, and some regulations can be put in place by administrative departments in a locality. (Similar to things like EPA regulations on the federal level).

The specific implementations vary in accordance to municipal charters and how specific states handle the incorporation of local governments.