Before I begin, I'll just point out two things immediately.  One, I'm not a legal expert, so please take this all with the appropriate amounts of salt.  Two, I'm not attempting in any way, shape or form to excuse the actions of Michael McGee.

Now with that little bit out of the way, why are there federal charges as well as state charges?  The federal complaint is now available online for you to read (the state complaint is currently sealed), and I find a few things to be of interest.  Everything I'm seeing says that they went through extra effort to make these charges federal.  For instance there is this (emphasis added):

As one example, on July 7, 2006, CW2 met with McGee for the purpose of paying him the $750 that McGee has previously requested.  According to CW2, because of McGee's position as a public official, CW2 felt compelled to provide the funds to McGee, fearing that refusing to pay McGee would jeopardize CW2's liquor license for CW2's business.  As part of this transaction, agents provide to CW2 a $750 United States Postal Money Order (#09284267924) with the payee line left blank.

I believe that they specifically chose a United States Postal Service Money Order because that then allows them to bring federal wire fraud charges, and potentially federal racketeering charges.  The use of any other form of payment (like cash or bank money order) would not have allowed federal charges to take place.  The rest of the indictment also makes reference to "interstate commerce" like this:

I am aware that at all times relevant to this affidavit, the City of Milwaukee has received in excess of $10,000 during a 12-month period under a federal program involving a grant, contract, subside, loan or other form of federal assistance.
...
Based on this investigation, I also am aware that the store owners mentioned herein operate, at least in part, in interstate commerce.  The store owners buy goods and services from entities outside the State of Wisconsin and the operation of the stores mentioned herein affect interstate commerce.

Of course, any business in this city, and any city in this country now falls within those parameters.

As I said, this is not meant to excuse his actions.  But federal charges seem out of line here.  What he did was a crime against the people in the City of Milwaukee, and the State of Wisconsin.  He should answer to those people... the people he actually wronged!  He should stand trial in Milwaukee.  Moreover, I dislike that members of the federal government basically tailored their method of investigation to guarantee the federal charges.  Somehow this seems to cheapen justice by taking the ability of the wronged parties to actually seek justice.  It also goes to show that if anyone in the federal government wants to accuse you of a federal crime, they can and will.  Federalism be damned.

This also proves that Michael McGee is a complete idiot.  Who takes a bribe in the form of a Postal Service Money Order anyway?  Seriously.  Wouldn't you look at that and get kind of suspicious?  Since when has bribery not been a cash business?