It’s kind of funny that “pay to play” is considered scandalous behaviour until the federal government does it. Several states now have laws to forbid the practice, but the fed can pay to play whenever it wants. I suppose it will take an egregious abuse, like Kelo, before the practice is reexamined in the light of undue influence. A lot of people think that the use of federal money to control state legislatures is wrong.
I see where you're coming from. As I see it, though, the real problem is that, for a whole bunch of reasons (some structural and some just out of the impulse to give up freedom in order to get crumbs from the feds), states have few *practical* options in refusing federal funds.
The SCOTUS has upheld the concept of tying federal funds to federal goals. In fact, this has worked in favor of conservative causes at times, such as when Libs sued to overturn restrictions on using federal funds for abortion and the SCOTUS said basically, "If you want the money, you have to take it on the federal government's terms."
So, I don't have a problem with the basic concept of being able to restrict how money is used or even under what circumstances it will be distributed. HOWEVER (big however), in practice the federal government often has abused this "power of the purse" and used it to enable its insinuation deep into every aspect of state sovereignty. Then once you get the public feeding at the federal trough, it gets even tougher to refuse federal funding, much less affirmatively sue to keep the feds out.
For example, look at public education. Not only did we create a public education system, we then made it centrally planned and controlled, money-wise at least, by the federal government! Now we have to fight like hell to get a crummy voucher for poor kids to go to a charter school in D.C. None of this had to be part of the federal government's function. Yet here we are. And now you'll find judges who will say because this is where we're at, we have no right to go in a different direction with education.
In many ways, we've created our own extra-Constitutional vicious cycle.