Y'all are trying to make a mountain out of a mole hill, here.
The state DOT is involved because it's a major thoroughfare. DOTs tend to be involved in that sorta thing.
There's no potential to make the local engineer look bad. All indications are that he was doing his job the right way. Kudos to him.
The local residents had a chance to do this the right way, but they chose not to. The city engineer even told them how to do it, and was willing to work with them if they did. This definitely isn't a "respect mah authority" kind of situation.
Nobody had their 1A rights violated. Residents are always allowed to make requests on road projects like this one, and this time was no different. These particular residents had plenty of opportunity to comment on the project, and despite their idiotic claims, nobody is trying to shut them up. If it turns out that the residents wrote their own report, then absolutely nothing will come of it.
The reason it was reported to the licensing board is because there was speculation that this particular "petition" was produced behind the scenes for the residents by an apparently unqualified engineer. If that's the case, it's a serious no-no within the profession and would be taken seriously. Real deal civil engineers tend to be uptight about this sorta thing, they don't like bridges that fall down and highways that cause wrecks.
If it helps you understand it better, think of it like a doctor stumbling across a patient who was chopped up by some back ally surgeon. Most conscientious doctors would report it to the medical examiners board, right?
There's really no reason for anyone to get indignant, here. So far as I can tell this event is playing out exactly as it should.