That doesn't make sense - if you had to have your dog muzzled in public around children then your dog would have to be muzzled all the time!!! If you can't find a specific reference on your city by-law site then I wouldn't worry about it.
In the city I live in there is a by-law that all pits must be muzzled and leashed while in public - it's very clearly stated and easy to find. Sounds to me like a busy body who has nothing better to do than start trouble for her own enjoyment
Somebody should muzzle her!