About midnight, I turned on the upstairs water and air came out with smelly black stuff. It instantly bled the line and flushed the black stuff out. The upstairs toliets also had trapped air that bled out. Is this a problem with my house system or is it from the city water supply? Also, is the water safe to drink?

I am not a plumber, but would think with water pressure, hard to get air in system, I would bet water was shut off during night and repair made, ask you neighbors if similar happened to them on that day.
I wouldn't drink. They give us warnings about contaminated water, after a repair, sometimes 2 days after the fact.