I can see both sides on this one, but I'm choosing to explain more from the club/event side of things as that's the one needing some more filling out from what I can see.
Short version: It's difficult to convince people to pay $30-$50 to come 15th in Masters at their local track, when they can race a $10 club-race at the site almost whenever?
Long Version:
I know it's not a state round, but WSMTB ran the Nat Round #1 at Yarra last year, we saw exactly this scenario. We wanted our members to still come to make it a massive event, but we simply couldn't think of how we could charge people 3 or 4 times the fee of a club race simply because it was a national round. In the end, we offered our members free entry in the "Blackman Bicycles 4 Hour" in December if they raced the national round, effectively discounting the national round down to $15 for them.
I was up at HMBA for the state champs the weekend before last, and they pretty-much get more HMBA riders to a club round than they got for the state round. I was in Adelaide for Nat round #1, ditto. The fields in QLD for Nat round #2 seemed a little more healthy, but still, I've seen WSMTB club XC rounds that would rival it in numbers-terms. All of these races could have significantly benefited, IMHO, from some kind of significant "local rider subsidy" program.
When it comes to XC, people are used to paying $10 for a club race at their local venue, and yet for big XC events, we want all of the locals and all of the travelers, more people makes for better racing and more fun for all.
I realise this is just a "glass half full" way of thinking, but try and just think of it for what it is: it's not a penalty for non-local members, it's a discount for the local riders whose club has stumped up the time & effort to host the event, do the hard yards, etc etc.
Another way of thinking? Without the discount, it may be the case that the local riders completely skip this event (instead of 50? 100?), which would then potentially increase the price of admission for everyone.
Stu.