During the two quests where the island states rebeled, I found that I was able to ally them for positive money right after they rebelled. This brought me a significant amount of income from the allience + the quest reward.

It means they are terrified of you and will pay to keep you from attacking them. More of an exploit than a bug. I use this a lot for my campaigns.

Yea it makes sense for sandbox mode, but it makes the quests more like a free cash prize than a challenge.