The mayor made the correct choice, not once but twice.
First he realized that there was nothing to be done that could help or save the infected refugees. Helping them would only spread the blight further. But he knew he couldn't convince the nice people of his village, if he had forbidden contact someone might have disobeyed and helped anyway. Death was the only solution. The mayor couldn't just go down there and stab them all though. So creating a flood to drown everyone quickly was actually a good idea.
Secondly he didn't tell anyone what he did. Partly that was saving himself of course but they did need his leadership after all. There's also the fact that he didn't want the murder of a group of people last on the consience of his village. He took full responsibility.
He didn't have any better options, he chose the least evil. Considering that Crestwood still existed 10 years later and was doing fine (except for the bandits and rift activity, which were both outside his influence) is a sign that he was a good leader.
I exiled him but if there had been the option of forgiving him and sending him back to Crestwood as mayor, I would have done so.