I think I'm punishing my players too much

I essentially wanted to have ways to put them under prolonged periods of crisis that wouldn't resort to chunky hitbox enemies and my feeble attempts at horror. So I decided to start the campaign with them signing a contract that put them in debt to a person/persons in the city and now they have a month to pay it back. This was definitely a drive in them finding work but it deprioritised my main storyline (mia culpa here) slightly. Now I've got lore for the city they're in, a magic-first kinda place that sits in the moral grey of having to protect its interests, prevent outside geopolitical infractions and also be the focal point of the storyline "uncover the mysteries of this ancient civilisation". This leads to one player being nerfed whilst inside the city (no divination or teleportation magic because magic defence), which the player has since come to suspect is because of the city rather than an attack on him.

Pre-amble over, they are very close to booking it from the city and they have just found a gnoll cave which has a cursed item in it. If the players take this item back over the threshold, the anti-fiend alarms are going to fire and probably scare the players into leaving the city for good (they've had bad luck here) and then I'll need to cook up smaller adventures for them. I am listening to my players, and what I'm hearing is I should make it less about punishing them for decisions.

Just wondering if anyone had any guidance on how to go about alerting the city to the presence of a foul magic item without it seemingly like I'm punishing the players.