The real question in my mind is: Is it legal for cities to be spending money on political campaigns, albeit in this case, with a middle man to launder the money???
No, I think there's a legal distinction. To deny individual citizens to make campaign contributions is of course illegal. To deny them to hire an agent to do it is also legal. So the case for banning public employee union contributions is weaker than the case for banning public employee unions in the first place.
Cities on the other hand are neither citizens nor agents for hire.