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Ted Cruz ran an expensive Republican primary for the US senator against a wealthy and well-known opponent, loaning his campaign more than $1 million in 2012.
The money helped him defeat Lieutenant Governor David Dewhurst in a runoff that essentially secured Cruz a seat in the Senate. But it came at a personal financial cost: Cruz was never able to recover $545,000 from that loan, according to an FEC report.
A 2002 law prohibits winning federal candidates from using more than $250,000 raised after the election to pay off loans they made to their campaigns before Election Day. Passed by Congress to help prevent barter corruption from emerging. The idea behind this limit is that money raised after an election no longer helps a candidate win office. Instead, the money goes into the voters’ pocket.
Cruz redeemed a large portion of his 2012 loan from the money he took out before Election Day. But when the Cruz campaign decided the loans could not be repaid in full due to regulations, it began exploring ways to defy the law, according to a May 2020 filing by Capel Hobbs, treasurer of the Ted Cruz commission.
Next month, his campaign lawsuit against the Election Commission will reach the Supreme Court. Cruz’s campaign lawyers are expected to argue that this limit is unconstitutional, arbitrarily limits political rhetoric and deters candidates from lending money to their campaigns.
“The federal government’s restrictions on a candidate’s ability to lend money to his or her own campaign violate the First Amendment,” a spokesperson for Cruz told the Texas Tribune in an email. “Senator Cruz seeks to defend his rights under the First Amendment and the rights of all those who seek election to federal office.”
It’s unclear if Cruz will ever get his money back, even if he wins his case. In 2015, after his campaign was audited by the Federal Election Commission, Cruz’s campaign converted existing outstanding loans into a contribution, as required by law. But he still listed the loans as an asset in the Senate’s latest financial disclosure, which may be a sign that 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 in the Supreme Court actually concerns a separate loan. The day before he won re-election in 2018, Cruz intentionally loaned his campaign $260,000 — and purposely established the basis for a lawsuit to overturn the rule and raise funds to recover the $10,000 that exceeds the $250,000 limit.
“The money they contribute actually goes into Ted Cruz’s bank account,” said Seth Nessen, the FEC’s former senior attorney in the case who left the agency in August after 13 years. “That’s what makes it seem, at least to me and some other people, so superficial.”
Cruz’s legal battle is a new front in a long-running effort by conservatives to undermine federal campaign finance rules that they say interfere with free speech. If the Supreme Court upholds lower courts’ rulings in Cruz’s favour, the case will deal another blow to federal campaign finance laws under Chief Justice John Roberts.
In the 2010 case Citizens United v. Federal Election Commission, the Supreme Court allowed unions and companies to spend as much as they like on independent political broadcasts in candidate elections. Campaign spending by outside groups doubled in the wake of the decision, according to a 2015 analysis by the Brennan Center for Justice. In the 2014 case McCutcheon v. Federal Election Commission, the Supreme Court ruled that the government cannot determine the amount of money people donate to federal candidates in total each two years.
But this case goes further, according to some critics of Cruz’s suit, because the money raised after the election will replenish politicians’ personal funds — not their campaigns.
If the Supreme Court overturns the limit, Tara Malloy, director of appeals and strategy at the campaign’s legal center, said the impact would be bad but “fairly narrow.”
“It stands to reason that when the election is over, the contributor doesn’t donate money to fund election speech anymore. At most, they are trying to associate themselves with the candidate,” said Malloy, whose group has provided an amicus brief to support the FEC in the Supreme Court case. This money raised will directly enrich the candidate in a way that no other campaign contribution will do.”
In a proposal made in July, the FEC cited a recent study of US Congressional campaigns from 1983 to 2018 by two finance professors at universities in France and Switzerland. The study found that nearly half of political campaigns rely on debt in some form. Debt incumbents are more likely to switch votes in favor of PACs that make post-election contributions, according to the study.
But conservatives have long argued in court that campaign contributions amount to political rhetoric, which should not be restrained.
In a friend of the court brief filed in August, the nonprofit Institute for Free Speech argued that curbs impede political discourse by discouraging candidates from lending to their campaigns.
Donald A. wrote.
FEC lawyers also argue that eliminating the limit would allow candidates to engage further in “debt stockpiling,” a loophole where donors avoid contribution limits by giving money to past campaigns with existing debt.
“If there is no limit on loan repayments now, a contributor who has not previously submitted to Senator Cruz can donate $16,000 today: a maximum of $5,000 for his 2012 primary and public campaign…an additional $5,400 for his 2018 campaigns…and Another $5,600 for his 2024 campaigns. The Federal Election Commission wrote that Senator Cruz will be able to provide another loan for his 2024 campaign to keep the cycle going.
But Judge Naomi Rao — who was appointed by former President Donald Trump to the Metropolitan Circuit Court of Appeals — wrote in June that because the government had not sufficiently demonstrated how the law prevents corruption, the limit is “inconsistent with the First Amendment.”
Lawyers representing Ted Cruz in the Senate have until December 15 to file their submissions in the case. Oral arguments January 19. If the limit is deemed unconstitutional, future candidates could theoretically repay loans in unlimited amounts with post-election contributions.
Nesin fears that the “extremely hostile court of campaign finance laws” may overturn this limit.
“I think it is highly unlikely that the Supreme Court will find the FEC on the merits of the case,” Nessen said. “Just because of who’s on the Supreme Court, the FEC doesn’t win anything.”