Campaign finance law challenged by Ted Cruz has cost him over $500,000

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Locked in an expensive Republican primary for U.S. senator against a wealthy, better-known opponent, Ted Cruz loaned his campaign over $1 million in 2012.

The cash helped him defeat Lt. Gov. David Dewhurst in a runoff that essentially secured Cruz a seat in the Senate. But it came at a personal financial cost: Cruz has never been able to recoup $545,000 of that loan, according to a Federal Election Commission report.

A 2002 law bans victorious federal candidates from using more than $250,000 raised after an election to pay back loans they gave their own campaigns prior to Election Day. Congress passed it to help prevent the appearance of quid pro quo corruption. The idea behind the limit is that money collected after an election is no longer helping a candidate win office. Instead, the funds go to the electee’s pocket.

Cruz recouped a good chunk of that 2012 loan from money received before Election Day. But when Cruz’s campaign determined that the loans could not be fully repaid due to the regulations, it began exploring ways to challenge the law, according to a May 2020 deposition of Cabell Hobbs, Ted Cruz Victory Committee treasurer.

Next month, his campaign’s lawsuit against the FEC will reach the Supreme Court. Cruz’s campaign lawyers are expected to argue the limit is unconstitutional, arbitrarily limits political speech and deters candidates from loaning money to their campaigns.

“The federal government’s restrictions on a candidate’s ability to loan his own money to his own campaign violate the First Amendment,” a Cruz spokesperson told The Texas Tribune in an email. “Senator Cruz seeks to vindicate his rights under the First Amendment and the rights of all those who would seek election to federal office.”

It’s unclear whether Cruz will ever get his money back, even if he wins his case. In 2015, after his campaign was audited by the FEC, Cruz’s campaign converted the existing unpaid loans into a contribution, as required by law. But he still lists the loans as an asset in his most recent Senate financial disclosure, which could be a sign he hopes to eventually get the money back. Cruz’s office did not respond to questions about his plans for the loan.

The lawsuit now pending before the Supreme Court is actually about a separate loan. One day before he won reelection in 2018, Cruz loaned his campaign $260,000 — intentionally establishing the groundwork to sue to overturn the rule and raise money to recover the $10,000 that goes over the cap of $250,000.

“The money they contribute is literally going into Ted Cruz’s bank account,” said Seth Nesin, the FEC’s former lead attorney on this case who left the agency in August after 13 years. “That’s what really makes it seem, to at least me and some other people, quite sketchy.”

Cruz’s legal fight is a new front in a longtime effort by conservatives to peel back federal campaign finance rules they argue are antithetical to free speech. If the Supreme Court affirms lower courts’ rulings in Cruz’s favor, the case would mark another blow to federal campaign finance laws under Chief Justice John Roberts.

In 2010’s Citizens United v. Federal Election Commission, the Supreme Court effectively allowed unions and corporations to spend as much as they like on independent political broadcasts in candidate elections. Campaign spending by outside groups more than doubled in the decision’s wake, according to a 2015 analysis by the Brennan Center for Justice. In 2014’s McCutcheon v. Federal Election Commission, the Supreme Court ruled that the government can’t cap the amount of money people donate to federal candidates in the aggregate every two years.

But this case goes a step further, according to some critics of Cruz’s lawsuit, because the money raised after the election would replenish politicians’ personal funds — not their campaigns.

If the Supreme Court struck down the limit, Tara Malloy, senior director for appellate litigation and strategy at the Campaign Legal Center, said the effect would be bad but “fairly narrow.”

“It’s just common sense that when an election is over, a contributor is not giving money to fund election speech anymore. At most, they are trying to associate themselves to the candidate,” said Malloy, whose group filed an amicus curiae brief supporting the FEC in the Supreme Court case. “That money that’s being raised will directly enrich the candidate in a way that almost no other campaign contribution will.”

In a motion filed in July, the FEC pointed to a recent study of U.S. congressional campaigns from 1983-2018 by two finance professors at universities in France and Switzerland. The study found that nearly half of all political campaigns rely on debt in some form. Officeholders in debt are more likely to change their votes to benefit PACs making post-election campaign contributions, according to the study.

But conservatives have long argued in court that campaign contributions amount to political speech, which shouldn’t be restricted.

In an amicus curiae brief filed in August, the nonprofit Institute for Free Speech argued that the limit hinders political speech by disincentivizing candidates from loaning money to their campaigns.

“Contributions to a political campaign promote more expenditures by that campaign, which results in more political speech,” wrote Donald A. Daugherty for the Institute for Free Speech.

FEC lawyers also argue that striking down the limit would allow candidates to engage further in “debt stacking,” a loophole where donors avoid contribution limits by giving money to previous campaigns with existing debts.

“If there were no Loan Repayment Limit now, a contributor that had not previously given to Senator Cruz could donate $16,000 today: the maximum $5,000 to his 2012 primary and general campaigns… an additional $5,400 to his 2018 campaigns… and another $5,600 to his 2024 campaigns. And Senator Cruz would be able to make yet another loan to his 2024 campaign to keep the cycle going,” the FEC wrote.

But Judge Neomi Rao — appointed by former President Donald Trump to the D.C. Circuit Court of Appeals — wrote in June that because the government did not sufficiently prove how the law prevents corruption, the limit “runs afoul of the First Amendment.”

Lawyers representing Ted Cruz for Senate have until Dec. 15 to file their brief in the case. Oral arguments are Jan. 19. If the limit is considered unconstitutional, future candidates could theoretically repay loans of infinite amounts with post-election contributions.

Nesin fears that the “very hostile court to campaign finance laws” may strike down the limit.

“I think it’s very unlikely that the Supreme Court will find the FEC on the merits of the case,” Nesin said. “Just because of who is on the Supreme Court, the FEC doesn’t win anything.”