Opponents of President Obama’s health care overhaul landed a chin shot last month when a federal judge found the law’s requirement that citizens buy health insurance unconstitutional. Virginia Attorney General Ken Cuccinelli argued that there was a conflict between a state law that made it illegal to force people to buy coverage and the new federal law.

But the Virginia law itself wasn’t thought up in the Old Dominion. Rather, it was the product of a 2008 huddle in Washington. Conservative state legislators from across the country, along with industry lobbyists, hashed out the bill at the annual gathering of a little-known group called the American Legislative Exchange Council, or ALEC. The organization, founded in 1973 and funded mostly by corporations and conservative foundations, exists to bring business-friendly state lawmakers together with lobbyists for corporations, including AT&T (T), Exxon Mobil (XOM), Wal-Mart (WMT), and Johnson & Johnson (JNJ). It drafts model bills related to its goals of free markets and limited government. Issues that ALEC has influenced include Arizona’s anti-immigration law, tort reform in Mississippi, and the opposition to Net neutrality.

Despite the intimate involvement of lobbyists, ALEC officials insist the organization is not a lobbying group, since it doesn’t follow lawmakers to try to advance their bills. Instead, ALEC is a charity, a status it justifies because of its educational mission. The designation allows the group to collect tax-deductible contributions, and it eases lawmaker travel to ALEC events. Says Edwin Bender of the National Institute on Money in State Politics: “Corporations can implement their agendas very effectively using ALEC.”

In the 2009 legislative session, by ALEC’s reckoning, state lawmakers introduced 826 bills the group conceived — 115 of which made it into law. That’s quite a record, and it’s going to get stronger. One overlooked aspect of the Republican resurgence has been its revolution at the state level. The GOP picked up more than 700 seats in state legislatures and now controls 25 of those bodies outright, from 14 before November.

While ALEC is officially nonpartisan, the outcome is clearly a boon; attendance at its December policy summit was the highest in a decade. “Voters want less government spending, less government involvement, and economic growth,” says Louisiana state representative Noble Ellington, ALEC’s national chairman.

ALEC is already plotting how to make the most of its new leverage, starting with the Environmental Protection Agency’s plans to regulate greenhouse gases. Among ALEC’s approaches is a resolution pressuring Congress to block new rules. “It’s pay to play, and they’re not shy,” said Adam Schafer of the National Caucus of Environmental Legislators.

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