> I don't know whether the city is correct about its power to terminate the contract

They were unambiguously violating state law intended to prevent this exact scenario when they were sharing the data with the federal government. Some lawyer is going to be having a bad year and a black mark on their resume if they didn't have a statutory breach clause in the contract with a city government and even if such a clause doesn't exist there is an extremely strong case for it regardless.

They have self-inflicted a business disaster upon themselves for doing that in a state like Illinois. In the event this holds up under that legal theory every municipality in the state has a case to dump them, to say nothing of getting new contracts there and in any place that has the same values.