If there was a block in a city where there was a high amount of XYZ felony activity; Should law enforcement observe the area and record tags of vehicles going into and out of that area?

Just having a tag in a general location, at a given time is insufficient information to take enforcement action.

I don't know anything about this particular issue in the news story and believe that on it's face it sounds like a fishing expedition. Automated tag readers are becoming ubiquitous and once some private entity has one and they purchase access to DMV records, there are many uses for such data.

Personal Privacy in this country is an endangered concept. Information is power, and most people are willing to pay good money for all kinds of information.

Be safe.