Internal documents from the American Legislative Exchange Council (ALEC) published by The Guardian provide stunning insight into the inner workings of the "corporate bill mill" -- and offer new evidence about how the group has continually misled reporters, the public, and even its own members.

The notoriously secretive ALEC has been thrust into the sunlight in the two years since the Center for Media and Democracy launched ALECexposed.org, analyzed over 800 of ALEC's previously-secret model bills, and documented the corporations and legislators pushing ALEC's legislative agenda. It now appears that ALEC has been scorched by the sunshine.

According to the new Guardian documents, which were apparently prepared for ALEC's board in August, over the past two years ALEC has been losing corporate members, suffering from major funding shortfalls, and anticipates legal trouble with ethics rules and its charitable tax status.

ALEC is still supported by tobacco, oil, and pharmaceutical interests, but has lost around 60 corporate members in the fallout over ALEC's role in promoting Stand Your Ground legislation, voter ID, climate change denial, and an array of other controversial, corporate-friendly bills, the documents show. The leaked documents outline a "prodigal son" project (misspelled as "prodical son") aimed at luring "lapsed" corporations back into the fold, and describe a $1.4 million budget shortfall that accrued as a result of ALEC's shrinking roster of corporate backers.

ALEC forms 501(c)(4), but previously claimed: "We have no current plans to operate a 501(c)(4) in the near future"

The Guardian documents show that ALEC has formed a new 501(c)(4) entity, the "Jeffersonian Project," apparently in anticipation of the IRS investigating ALEC's current 501(c)(3) charitable status. This revelation could be seen as an admission from ALEC that its critics were correct about its violations of the tax code (although ALEC insists it does not lobby, despite documentary evidence to the contrary).

ALEC had previously misled reporters about its plans for a 501(c)(4).

In December of last year, ALEC spokesperson Kaitlyn Buss told Bloomberg News "we have no current plans to operate a 501(c)(4) in the near future."

When Buss said "the near future" and "current plans," she apparently meant "next week."

Just eight days after the Bloomberg story ran, ALEC formed the 501(c)(4) "Jeffersonian Project," according to a certificate of incorporation obtained by the Center for Media and Democracy. (ALEC also failed to mention to Bloomberg that it had incorporated another 501(c)(4), "ALEC NOW" in July of 2012; that entity was dissolved earlier this year.)

"The only charity work ALEC does is on behalf of needy corporations and lonely legislators," said Rep. Mark Pocan (D-WI), who as a state legislator attended some ALEC meetings and wrote about it for The Progressive magazine. "It is past time that ALEC is exposed for what it is -- a corporate lobbying firm doing the bidding of corporations."

ALEC forms 501(c)(4) to "provide greater legal protection," "lessen ethics concerns"

ALEC's 501(c)(3) charitable status has been challenged in IRS complaints from Common Cause, Clergy VOICE, and the Voters Legislative Transparency Project, all of which allege that ALEC engages in far more lobbying than is permissible for a "charity," and which were supported with research from CMD. When Common Cause's late president Bob Edgar filed a whistleblower complaint challenging ALEC's tax status in April of 2012, ALEC fought back hard. Its lawyer Alan Dye publicly dismissed the complaint a "harassment tactic" that "ignores applicable law."

"The attacks on the American Legislative Exchange Council are based on patently false claims," he told reporters at the time.

But behind the scenes, Dye took a more measured tone, according to the Guardian documents. Forming a 501(c)(4) -- which is allowed to lobby without limit -- would "provide greater legal protection or lessen ethics concerns," Dye wrote in an August 2013 memo to ALEC's board of directors. Forming the Jeffersonian Project would remove "questions of ethical violations made by our critics and state ethics boards and provides further legal protection."

"ALEC certified to the IRS for years that it didn't spend a penny on lobbying, thereby preserving its absurd status as a charity," Steve Spaulding, Staff Counsel at Common Cause, told CMD.

ALEC's charitable status had allowed its corporate members to write-off their ALEC membership dues -- which are essentially lobbying expenses -- as tax-deductible charitable contributions.

"In forming a 501(c)(4) arm, it appears that ALEC is on notice that it's not going to get away with abusing our nation's charitable tax laws much longer," Spaulding said.

ALEC Bleeding Corporate Members, But Told Legislators "Our Numbers Are Actually Up"

The Guardian documents also reveal the rapid drop in ALEC's corporate and legislative members, and the corresponding impact on ALEC's budget. Many of the departures are attributable to public awareness campaigns by Color of Change, Progress Now, Common Cause, Greenpeace, People for the American Way, CMD and other public interest organizations.

"By ALEC's own reckoning the network has lost almost 400 state legislators from its membership over the past two years, as well as more than 60 corporations that form the core of its funding. In the first six months of this year it suffered a hole in its budget of more than a third of its projected income," The Guardian reports.

But ALEC tried to suggest otherwise in communications with its legislative members.

In June of 2012, in the wake of intense criticism for its multi-year drive to get "Stand Your Ground" bills introduced and passed and following an exodus of its corporate members, ALEC sent an email to legislative members to boost morale.

"We've done some tremendous work over the years," ALEC wrote, claiming it was "correct[ing] the record" about the "outrageous claims about ALEC" and its dwindling membership.

"You may be interested in knowing that, since CMD and others began their efforts, our private sector membership has increased by 20 percent in the last 12 months," ALEC wrote in the June 2012 email. "In fact, despite the prevailing narrative of late, our numbers are actually up from where they were just 12 months ago."

But ALEC's internal documents indicate that the organization was misleading its legislative members.

According to the Guardian documents, ALEC's "private sector" members dropped from 280 in 2011, to 241 in 2012, to the new low of 214 in 2013, as of this summer. Legislative membership dropped from 2,200 in 2011, to 2,010 in 2012, to 1,810 in 2013 (although ALEC still boasts of 2,000 members on its website).

When confronted with these facts by The Guardian, ALEC gave a statement markedly different than what it previously told its legislative members.

"No one disputes that ALEC lost public and private members during the past several years," said ALEC spokesperson Bill Meierling.

ALEC as Pay-to-Play

Other documents, such as those describing potential ALEC task forces that could help attract new funders, undermine the notion that ALEC is a legislator-driven organization. The materials indicate that ALEC operates as a genuine pay-to-play.

Despite ALEC describing itself as being "run by and for state legislators," the factors ALEC considered when deciding whether to enact task forces like "Gaming" or "Tribal Affairs" had little to do with the interests of state legislators. A "pro" for a Gaming task force is that the industry generated $37 billion in revenue last year; a "con" for a potential Tribal Affairs task force is that "there may be little to no private sector funding," even while acknowledging that the issue would be relevant to many ALEC legislators.

Pledging Allegiance to ALEC

One of the more bizarre revelations in the documents is a plan to have the legislators who serve as ALEC State Chairs sign a pledge of "loyalty" and agree to "put the interests of [ALEC] first." This proposal underscored concerns that some ALEC politicians have been putting the interests of ALEC (and its corporate backers) ahead of their constituents, and ahead of their commitment to upholding their state constitution.

Another element of the pledge is an agreement that State Chairs will "inform ALEC of any public records/FOIA requests that include ALEC documents." This fits into a larger pattern of ALEC trying to keep its communications with lawmakers secret. This year, ALEC began stamping the materials it gives to legislators with a "disclaimer" asserting that the documents are not subject to any state's open records/freedom of information laws, and has been sending communications to legislators via an online dropbox, which it admitted was an effort to try to evade disclosure under open records laws. CMD has fought ALEC legislators' efforts to keep ALEC records secret in Texas and Wisconsin.

The cover page for the State Chair pledge states that ALEC recommends that "The Board should approve the following job descriptions for State Chairs," but ALEC told The Guardian that the pledge was not adopted.

Still, it reflects a very troubling mindset to even propose that the elected officials who lead ALEC's legislative agenda owe ALEC a duty to put the organization first, and to report to it.