It's my understanding the water department is under a different budget than the other city departments
The Water Department is what is often called an enterprise fund - it's a department that has its own source of revenue and expenses, and may receive revenue from non-citizens, which is all of the non-Toledo water customers in this case. Under law, Toledo can not make a profit from the water department that would subsidize services for Toledo residents. But it can pay for all of the incompetent, but too-hard-to-fire employees that are shuffled to it.
If we end up with a regional water authority and a new plant, does all this crap go away? I can't see any of the suburbs going into any new agreement with Toledo without a provision to put an end to Club Cronyism.)
Maybe, maybe not. I can see Toledo insisting that it's employees be protected in any agreement to form a regional water authority. Depends how big of a d!@k the 'burbs want to be or think they can get away with.