“Why does the federal government need to possess all this land that rightfully belongs to the individual states?”
I see no good reason to agree with your premises.
As far as I can tell, the federal government does not “possess all this land”. The United States possess all this land. The federal government is an agent of the States. Admittedly it’s out of control, but it’s still an agent. The federal government is not the United States.
Why should this land rightfully belong to the individual states? The land was acquired and therefore owned by the United States as a group, so by what process did ownership change when a new state was created? Do we not believe in property rights or do they not apply in this situation for some reason?