First Federal Withholding of Funds to States?

[Will_Repair]

This is actually two questions.
When did the federal government start subsidizing state funds.
When did the federal government first require a state to pass a law in order to receive funds?

[Freddy_the_Pig]

@Will Repair

When did the federal government start subsidizing state funds.

In 1790, when the federal government assumed debts that states had incurred during the Revolutionary War period.

@Will Repair

When did the federal government first require a state to pass a law in order to receive funds?

Most federal aid to states in the Nineteenth Century took the form of “land grants” rather than direct cash appropriations, and these grants were often conditional on states taking certain actions or passing certain laws. The best known land-grant law was the Morrill Act of 1862, which granted federal land (effectively, money) to the states for the purposes of building and operating universities.

As you can see within the text of the act, the grants were loaded with strings; the act lists seven conditions states had to meet in the form of laws which had to be passed, actions which states were required to take, or actions states were forbidden from taking.

Earlier examples could be cited. Consider the text of law admitting the State of Alabama to the Union in 1819. It provides:

That thirty-six sections, or one entire township, . . . be reserved for the use of a seminar of learning, and vested in the legislature of the said State, to be appropriated solely to the use of such seminary by the said legislature.

Provided, however:

. . . that each and every tract of land sold by the United States, after the first day of September, in the year one thousand eight hundred and nineteen, shall be and remain exempt from any tax laid by the order or under the authority, of the State, whether for State, county, township, parish, or any other purpose whatever, for the term of five years from and after the respective days of the sales thereof; and that the lands belonging to citizens of the United States, residing without said State, shall never be taxed higher than the lands belonging persons residing therein; and that no tax shall be imposed on lands the property of the United States; and that all navigable waterways within the said State shall forever remain public highways, free to citizens of said State and of the United States, without any tax, duty, impost, or toll, therefor, imposed by the said State.

Federal funds, federal strings . . . not a new concept.