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I would like to improve my forms and remove city and state fields so that there are 2 less fields to fill out. I have an input field for city and select drop-down for state. Instead of asking visitors to fill them out, I can do a look up via JavaScript or backend like php to populate the city and state before saving the record in my database. I'm leaning towards a web service versus an offline zip db that I would have to keep up to date.

Are there any free or cheap tools I can use to populate city and state based on zip code provided?

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You can look into zip apis that allow you to receive city and state based on provided zip code. One that is free to use is zipapi.us and they provide what you are needing to accomplish with your form.

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