Massachusetts. Honestly the town shouldn't even have been allowed to defy them, it should have been automatically overruled and judged as void.
The law requires that municipalities adopt a certain type of zoning policy, so Milton would have to affirmatively do that in order to be in compliance; it's violating the state law via inaction, not via action. The remedy will probably be either some kind of court-appointed special master drawing Milton a new zoning map or the court ordering that the select board's zoning map go into effect despite the town's residents having voted it down.
But that's not what they're doing, it's what I want them to do. Instead they're withholding state funds from the city.
Yes because access to those funds was contingent with complying with these zoning requirements. It's similar to how red states don't get the free money for Medicaid from the federal government if they refuse to expand it like states that have expanded Medicaid get.