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An influential US lobbying network of Republican politicians and big businesses is seeking to avert a looming funding crisis by appealing to major donors that have abandoned it over the past two years following criticism of its policy on gun laws.

The Guardian has learned that the American Legislative Exchange Council (Alec), which shapes and promotes legislation at state level across the US, has identified more than 40 lapsed corporate members it wants to attract back into the fold under a scheme referred to in its documents as the "Prodigal Son Project".

The target firms include commercial giants such as Amazon, Coca-Cola, General Electric, Kraft, McDonald's and Walmart, all of which cut ties with the group following the furore over the killing of the unarmed black teenager Trayvon Martin in Florida in February 2012.

Alec was embroiled in the controversy surrounding Florida's 2005 "stand-your-ground" law under which George Zimmerman, the neighbourhood watch volunteer who shot and killed the 17-year-old Martin, initially claimed self-defence. The Florida law was picked up by Alec, and, working in partnership with the National Rifle Association, used as a template for one of its "model bills", which was then taken up by other states across the country.

The Guardian has learned that 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 reference to the Prodigal Son Project is just one of many revelations contained in a batch of internal Alec documents that have been obtained by the Guardian. The documents, prepared for its most recent annual board meeting in Chicago in August, cast light on the inner workings of the group.

They show that:

• Alec has set up a separate sister group called the "Jeffersonian Project" amid concerns over possible government inquiries into whether its activities constitute lobbying – which would threaten its tax-exempt status;

• the network has suffered a decline in its membership among state-based Republicans and among big corporations following the Trayvon Martin controversy;

• its income raised from conferences, membership fees and donations has fallen short, leaving the group with a potential funding crisis;

• a draft agreement prepared for the board meeting proposed that Alec's chairs in each of the 50 states, who are drawn from senior legislators, should be required to put the interests of the organisation first, thus setting up a possible conflict of interest with the voters who elected them;

• Alec also considered extending its remit to include the gambling industry, particularly online gambling, as a possible source of new members and revenue.

Alec reconvenes for its next nationwide meeting, described as a "states and nation policy summit", on Wednesday in Washington. The three-day event will be attended by hundreds of state legislators and corporate representatives.

In a sign of the influence the network holds with Republicans, it will be addressed by rising stars of the party including US senator Ted Cruz of Texas, who led the push for the recent government shutdown, and the party's budget guru, Paul Ryan of Wisconsin.

The network also counts among its former members the two highest ranking Republicans in the House of Representatives, John Boehner and Eric Cantor, as well as prominent Republican governors such as Scott Walker of Wisconsin and John Kasich of Ohio.

The documents seen by the Guardian show that Alec is hoping to avoid legal, tax and ethical challenges by creating a separate sister organisation it calls the "Jeffersonian Project". The new body would be categorised as a 501(c)(4) social welfare organisation, a designation that would allow Alec to be far more overt in its lobbying activities than its current charitable status as a 501(c)(3).

"Any activity that could be done by Alec may be done by Jeffersonian Project if legal counsel advises it would provide greater legal protection or lessen ethics concerns," a note on the proposed new body to Alec's board of directors says. The note adds that the Jeffersonian Project would remove "questions of ethical violations made by our critics and state ethics boards and provides further legal protection".

Alec's critics have accused it of violating tax laws by lobbying on behalf of rightwing legislation that advances the interests of its corporate members. Among the areas that Alec has pursued aggressively in the form of model bills are measures to privatise public education, cut taxes, reduce public employee compensation and workplace rights, oppose Obamacare and resist state action to reduce global warming gas emissions.

A letter included among the documents from Alec's lawyer, Alan Dye, warns that "though we do not believe that any activity carried on by Alec is lobbying, the IRS could disagree". It also makes clear that major potential donors are holding back because they are anxious about Alec's tax status.

"Alec has been approached by donors who are willing to make sizable donations, but insist that the donations go to a section 501(c)(4) organization," Dye writes.

However, the decline in both public and private membership is starting to have an impact on Alec's financial health, the documents show. Over the first six months of this year, the network suffered a shortfall on its projected budget of $547,500 in sponsorship of its thrice-yearly national conferences, and a further shortfall of $440,792 on its general support from memberships.

By 30 June this year it had developed a hole in its income of $1.4m on expected dues of $3.9m

Despite the losses, Alec continues to be supported by some of the largest rightwing foundations in the country, including the energy tycoons the Koch brothers, the Bradley Foundation and the Searle Freedom Trust set up by the creator of NutraSweet. Alec's list of corporate members includes companies such as the telecoms firm AT&T, energy concerns Exxon Mobil and Peabody Energy, the pharma company Pfizer, drinks giant Diageo and the tobacco multinational Altria.

Yet the hole in Alec's budget still has to be filled, lending urgency to the push to regain lapsed members referred to in the documents as the Prodigal Son Project. Meierling said no "specific, named project exists", but he added that "it is reasonable for any organisation to be interested in engagement with former members".

Lisa Graves said that the difficulty the network was having in attracting back major corporate sponsors showed how vulnerable the network is to public scrutiny. "This is a reflection of the power of sunlight on their activities – for too many years they were operating largely in secret. Corporations are sensitive to these issues."

The documents obtained by the Guardian include a variety of papers prepared for Alec's board of directors. To give a full and fair picture of the organisation, the Guardian is publishing all of the documents.

Among them is a draft agreement that was prepared for Alec's board of directors that set out the proposed responsibilities of the group's state chairs from prominent, largely Republican, legislators. The draft agreement contains the proposed commitment from state chairs that: "I will act with care and loyalty and put the interests of the organization first."

The duty of elected politicians to put the interests of Alec first, with no mention of their obligations to the voters who put them in office, would have set up an apparent conflict of interest. But Alec said that the draft agreement was not adopted by the membership committee or by any of the state chairs. "All legislators are beholden to their constituents' interests first – if they are not, they will be held accountable at the ballot box," Meierling said. More at http://www.theguardian.com/world/2013/dec/03/alec-funding-crisis-big-d
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