I recently had the pleasure of watching L2 competition during both of my boys (L6 and L7) meets at a bigger meet in our region - and enjoyed seeing that the girls seemed to be having fun, most not taking it too seriously, etc. A few parents seemed a bit over serious about what is truly very basic gymnastics with little girls having fun with friends, but most seemed very appropriate. Same for the coaching staff. I know that there are regions where L2 is "serious" - but just like soccer tots and 6 year old Tball we all need to keep a perspective. The girls were clearly learning how to line up, start on time, salute,not pick their wedgies too much, etc...
A coaching ratio of 1 to 21 is absolutely inappropriate - especially at this age - kids will get hurt, plain and simple. Arms can be broken falling off beam whether you are doing a straight jump or a back tuck - probably more likely with the little one because the older gymnast has learned how to fall safely.
Also, in compulsory gymnastics learning the routine and then learning the routine at the right time (ie with the music) takes lots of repetition - even with such a short, sweet routine - that would concern me as well. I definitely saw scores all over the place - 7s to 9s...and frankly, with my kids in levels 6-8 age 10-14, I'd say that the kids scoring 7s may be just as ready to be good L3s in a year and level 5s in 2-3 years as those scoring 9s at L2....that's several more years to learn to compete, get more mature, and point your toes. The rest is skills and really the L2 skills are very basic, rec gymnastics skills....no offense.
Moving gyms is difficult on kids and can lead to losing a year or so in progression - but at this level you need to have an idea of what the long term training might look like for your kid. Sounds like the gym is in flux - in that case its more important that you trust the HC and coaching philosophy overall than what levels they presently have, or how they are scoring. Are the older girls happy? Do they stay with gym into high school, or quit early as a rule? Are there older kids of multiple skill levels and body types progressing at their own pace - some fast some slow but all getting good coaching? Do they support each other and is bullying tolerated? Is your child getting corrections that she can use during practices - spotting on basic forms and shapes comes to mind for this level - its hard, because my DD didn't compete until age 8/ old L5 - so really at this level/skills it was all training on form, strength and progressions....never had to learn and then never use the dreaded mill circle - although I spent my youth doing them for fun at the park!
If you like the gym/coaching philosophy and the way the girls are treated throughout the program, and if you have faith that they can rebuild, then sit tight. If not, this is a great age/stage to change gyms to one that will allow her to grow and progress at whatever pace is meant for her....whether she skips levels, does 2 a year, or repeats (and believe me, my DD has skipped levels, done 2 a year AND repeated level 7....kids change!)