Cruz won the ability to recoup his loans with political donor money after the court ruled that a 2002 campaign finance law creates an unconstitutional burden on freedom of speech. That law prohibits candidates from raising up to $250,000 in post-election contributions to repay loans made during a federal political campaign.
The court’s decision could create a new way for political candidates to finance their campaigns through personal loans that would be paid back later by donors. That could also enable politicians to personally make money on their campaigns by charging interest on loans later repaid by donors. And it could also signal a further weakening of the already teetering edifice of campaign finance regulation.
But in the immediate term, the court’s decision will allow one candidate ― Cruz ― to raise money from rich donors and political action committees to repay the more than half-million dollars he loaned to his two Senate campaigns.
The case of Federal Election Commission v. Ted Cruz for Senate emerged in the final days of Cruz’s reelection campaign in 2018 against Democrat Beto O’Rourke. Cruz loaned his campaign $260,000, choosing this amount on purpose because it was $10,000 over the limit on post-election fundraising aimed at paying off personal loans. His intention in making the loan was to challenge this limit in court. And by winning he will not only get to recoup the $10,000 over the limit he loaned himself, but also another $545,000 he loaned his campaign in 2012 and hasn’t recouped.
The $250,000 limit on post-election fundraising to repay loans was enacted as part of the Bipartisan Campaign Reform Act of 2002 ― more popularly known as McCain-Feingold after its lead Senate sponsors. The law allows candidates to pay off loans with money raised pre-election, but only if they do so within 20 days after the election.
The justification for these limitations is that post-election contributions to a candidate, particularly a winning candidate, to help them repay a loan present an increased potential for corruption or the appearance of corruption because “when a campaign uses a contribution to repay the candidate’s loan, every dollar given by the contributor ultimately goes into the candidate’s pocket,” the Justice Department argued in a brief to the court.
“A post-election contributor also usually will know whether the recipient of the contribution has prevailed in the election,” the DOJ brief continues. “The contributor therefore can know ― rather than merely hope ― that the recipient will be in a position to do him official favors.”
Justice Elena Kagan noted the risk of corruption in a dissent, joined by Justices Stephen Breyer and Sonia Sotomayor.
Kagan laid out a potential scenario: “And as they paid him, so he will pay them. In the coming months and years, they receive government benefits ― maybe favorable legislation, maybe prized appointments, maybe lucrative contracts. The politician is happy; the donors are happy. The only loser is the public. It inevitably suffers from government corruption.”
Kagan warned there could be major implications: “In striking down the law today, the Court greenlights all the sordid bargains Congress thought right to stop.”
The majority opinion, however, said the limit on loan repayment burdens candidates and deters them from loaning money to their campaigns. The opinion was written by Chief Justice John Roberts, joined by Justices Clarence Thomas, Samuel Alito, Neil Gorsuch, Brett Kavanaugh and Amy Coney Barrett.
“This burden is no small matter,” the opinion reads. “Debt is a ubiquitous tool for financing electoral campaigns, especially for new candidates and challengers. By inhibiting a candidate from using this critical source of campaign funding, [the law] raises a barrier to entry ― thus abridging political speech.”
The long-term impact of the ruling is not known at this time. More candidates could move to fund their campaigns through loans that could be repaid by donors at a later date, but there is no immediate driving impulse for such a shift.
Cruz, however, will be able to raise $555,000 and put it in his own pocket immediately. For that, he can thank the six conservative justices ― three of whom he voted to confirm.