Seems like because of his CHOICE to have the sex change, it will cause too much disruption and interfere w/ 'it's' ability to do the job effectively. I would feel different if it wasn't something elective, but 'it' made the decision, and 'it' has to live w/ the consequences.
Right that's easy to say, but the story leaves out a lot. He could be an intersexed individual - the article makes no mention of wife or family. An intersexed individual is born with transient genitalia and, as I'm sure you can imagine, has a shitload of stress in their life over that. Getting a sex change is seen as a way to normalcy, a way to legitimacy and a way to end the stress and possibly even start up a relationship. So, it might not be his choice in the sense you're refering to it as.
Further, even if he's a completely normal, functioning male, he may still feel the need for a sex change, seeing as he doesn't identify himself as male (he calls himself transexual). I don't see how in any way, short of medical leave, that a sex change operation would be able to effect his ability to work as a City Manager. If it's an elected position and if the electorate feels too uneasy about the guy after the operation, or they feel his work has been affected, then they can give him the boot - it's not the City Council's decision to make before the fact. They haven't even given this guy a chance to prove he can continue to be effective - they are firing him due to their own ignorance and hate.
The quote from councilman Black is especially revealing, that somehow, this guy getting a sex change operation robs him of integrity, trust and respect. The City Manager has probably identified as a transexual his entire adult life, yet, apparently, Black trusted him then. When he's out in the open, all of a sudden he's persona non grata.
These are not consequences "it", as you put it, should fairly have to live with. In no way can anyone fairly say that the operation will surely make the City Manager less effective or capable. It's punishing a person for a personal decision in their largely personal life - how would you feel if you worked for one of those companies that started firing employees because they smoke?