What is illegal about it, Phil?
It's illegal for 2 basic reasons. First, you can't amend, modify, or eradicate a state statute through the use of a municipal petition drive. The creation of TDDs and the process of limiting votes to residents/property owners within the TDD is statutorily permissible. The only way to change this reality is to change the statute. Secondly, there is no statutory mechanism for penalizing city employees for doing what state statute requires/enables them to do.
long story short, if you don't like TDDs/CIDs, change the law in Jeff City. Any effort to change the law in City Hall is futile.