A Regulatory Path to Repeal the RGGI Carbon Tax

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Governor Glenn Youngkin (R) will proceed to remove Virginia from the Regional Greenhouse Gas Initiative carbon tax compact by the same route Virginia entered it:  He will push to repeal the underlying regulation.

As with much else in his promised “Day One” agenda, it will actually take time.  What he gave Virginia on Day One was an executive order outlining the coming steps, which still must follow the letter of Virginia’s administrative process rules.  Regulations are created, amended and repealed routinely.

His administration will also notify the RGGI organization of Virginia’s intent to withdraw, a step contemplated and allowed under the governing memorandum of understanding.

It was a vote of the Air Pollution Control Board, citing authority over airborne carbon dioxide emissions, that implemented the cap and trade rules that require electric power producers to buy carbon allowances.  That allowance cost is then passed on to power customers, in the case of Dominion Energy Virginia customers directly on every month’s bill.

The Virginia General Assembly authorized (that’s the key word) Virginia’s participation in the regional compact that auctions the allowances, but no law says Virginia must belong. What everybody keeps tiptoeing around is whether the repeal vote must be taken by the same Air Pollution Control Board.  Maybe not.

On paper, the members appointed or reappointed under previous Democratic Governor Ralph Northam have fixed terms to complete, and Youngkin can replace only two of the seven members come July 1.  Need he wait years for a majority?  Four years ago Northam fired two air board members out of the blue, right on the eve of a key regulatory vote involving the Atlantic Coast Pipeline.

A recent Air Board permit vote against the Mountain Valley Pipeline, unrelated to RGGI but totally related to the overall War on Fossil Fuels, will also have some Youngkin supporters clamoring for rapid change on that body.

Participation in RGGI, which reaches from Virginia up to New England, was first proposed through regulatory action starting under Governor Terry McAuliffe (D).  Under full Democratic control, the 2020 General Assembly passed legislation which stated the Department of Environmental Quality was “authorized” to implement the program and start charging power companies for the allowances.

RGGI defenders will be scouring the code and precedents seeking to argue the bills passed actually require participation.  If so, a fresh Assembly vote would be needed to reverse course, and the Virginia Senate remains under Democratic control.  Be resigned to the fact some judge will get the question eventually, probably.

Since Youngkin’s initial pronouncement,  supporters of the tax scheme have attacked the straw man of “repeal by executive order,” something he never actually said he would do.  The lame duck Attorney General even issued an opinion that stated the legally obvious, and completely ignored the other possible path of regulatory repeal.  He offered a half answer to satisfy half-wits.

As the struggle unfolds, Virginia’s electricity producers will continue to participate in the auctions to buy carbon allowances (the next one is in March).  The tax added onto Dominion bills will remain, although the company recently told the State Corporation Commission to put on hold its request for an increase in the tax rate.  If RGGI remains in force, that rate hike request will be reinstated (it wasn’t set to happen until September anyway.)

This is mainly about Dominion and its Virginia customers.  Repeal of RGGI, however, would lower costs for a handful of other generation firms or manufacturers, some of them locked into contracts that have prevented them from passing the cost on in prices.

Virginia is sitting on the largest mountain of free cash flow in its history.  Every tax source is bursting at the seams in the forecasts. Even the outgoing Northam Administration proposed billions in tax cuts.  But the $228 million that the state extracted from its citizens under RGGI last year, expected to be $300 million this year, is suddenly crucial to the survival of Planet Earth and the Human Race.

While the administration is working to end the tax, the General Assembly should find funding for the flood mitigation projects being paid for with the dollars.  Hurricanes and storm surges are real threats, even if the sea never rises another inch, and Virginia is not ready.  Massive federal infrastructure funding is pending and may be sufficient for this and other purposes.

But RGGI taxes are not the only potential source of funding, nor will any of those mitigations in themselves do anything to change relative sea levels or change rainfall patterns.  The constant claims that RGGI is a tool in the fight against climate change are nonsense.

Other laws passed by the Democrats when they held control do far more to force Virginia away from using fossil fuels, but without the addition of a tax consumers can see.  Frankly, they will cost consumers far more over time then the RGGI taxes will.  Amending or repealing them is far more important to Virginia’s economic future than dealing with RGGI.

Those laws will also be under attack in the 2022 General Assembly, but in their case, it will take legislative action to change direction, and the shrinking group of ostensibly-sensible Democrats will need to decide if Virginia really can prosper in an ell-electric economy tied to unreliable wind and solar sources.

Stephen D. Haner is Senior Fellow with the Thomas Jefferson Institute for Public Policy.  He may be reached at steve@thomasjeffersoninst.org.

Posted in Energy, Environment, Government Reform, State Government, Taxes | Leave a comment

Time To Reform Virginia’s Energy Policies

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Dominion Energy Virginia’s November announcement that its proposed offshore wind project has jumped almost 25% in cost to $10 billion, with years to go before construction even starts, has put Virginia’s energy policy and its response to claims of climate disaster on the front burner for 2022.

Dealing with these issues should be a top priority of the Youngkin Administration and the General Assembly, and the Governor-elect has already taken important first steps by pledging to leave the Regional Greenhouse Gas Initiative and its accompanying power bill tax.

Here are additional suggested priorities, based on 15 years of dealing with these issues at the General Assembly and the State Corporation Commission.  First and foremost:

  • Restore the proper oversight role of the State Corporation Commission over utility rates, profits, and capital planning. Let the SCC decide how to allocate costs between customer classes. The General Assembly has dangerously usurped that function, often leaving the SCC nothing but an administrative agency subject to changing political winds.
  • One of the first key decisions the new General Assembly will need to make is whether to give a full term on the SCC to Angela Navarro, elected by the Democrats last year after serving as an architect and advocate for the Virginia Clean Economy Act of 2020 and other anti-fossil fuel efforts.  As I wrote elsewhere, personnel is policy.
  • Limit campaign contributions from all donors (still important even if the General Assembly stops usurping the SCC’s job in the future.)  We’ve now held another election where utilities and the vested interests behind unreliable, intermittent generation sources poured incredible amounts of money on candidates and parties.
  • Limit or eliminate non-disclosure agreements in cases before the SCC. Too much vital information is redacted and never made public.  The first motion Dominion Energy Virginia has made to the SCC in its effort to build 2,600 megawatts worth of ocean wind turbines is a motion to seal much of its data.  Outgoing Attorney General Mark Herring should have opposed that motion and demanded transparency.  He didn’t.  Incoming Attorney General Jason Miyares should.
  • Move the Consumer Counsel function outside of the Office of the Attorney General. Perhaps the job should be filled in the same manner as the SCC itself, or some other judicial position.  But it needs to be at least shielded from the election process and the person holding it should have a term certain and perhaps no expectation of reappointment.
  • Review every code section dealing with electricity regulation or other energy use and reconsider each instance of the phrases “in the public interest” or “shall be deemed reasonable and prudent.” Those are the words the General Assembly uses to dictate policy to the SCC despite the ignorance of most legislators on these matters, and their sensitivity to donors.  Likewise remove hard numerical targets for various forms of energy generation, which were based on politics, not engineering.
  • Review every code section and reconsider any financial subsidies or rewards offered to influence utility decisions about one project over another, especially any remaining bonus returns on equity for stockholder-favored investments. This would include recently approved (but not yet funded) subsidies for rich people to buy electric cars.
  • Require local governments providing monopoly utility service to maintain that service or turn it over to the private sector if they wish to exit.  The recent indication that the City of Richmond might close its gas utility and leave 120,000 customers stranded is a warning the Assembly must heed.
  • Require more competition for utility-scale generation services both to discourage placing all the cost and risk on ratepayers, and to be sure of fair and honest pricing on utility-owned projects.  The monopoly utilities don’t need to own so much of the generation.

Virginia should not abandon the current structure entirely. The pure competitive supplier model has plenty of downsides (See Texas).  It is only attractive to so many in Virginians at this time because Dominion Energy Virginia has corrupted the market to unfairly enrich its stockholders.  If all these other steps are taken and electricity costs in Virginia stabilize, the desire to bolt from the monopoly service will wane.

Now to the various controversial decisions on generation and transmission being dictated by the Virginia Clean Economy Act, which will be radically revised by several of the points above.

  • The remaining coal generation should be allowed to die a natural death from market forces. As the environmental costs grow, and the revenues shrink, remaining facilities will be closed early without any action by the SCC necessary.  Requests to fund improvements should be viewed with skepticism.  No new coal plants are going to be built.  Dominion’s Virginia City plant in Southwest Virginia was always a good political investment, never a good energy investment. If it is now a financial liability; it should be closed.
  • The SCC should be making the decision how much utility-scale wind or solar generation is justified, and when, and what are the best options for reasonable cost and reliable supply. That will likely reduce the amount of those wind and solar investments over the next 25 years below the VCEA’s goals, with more natural gas remaining.   The offshore wind proposal in particular demands a real evaluation of its cost and prudence.

This is not a complete list, and of course some of these points would engender incredible debate and maybe even full-scale war at the General Assembly.  But it is where Virginia needs to go to keep energy abundant and costs reasonable.  With the flip in the Governor’s Mansion and House of Delegates, a change of direction on this front must follow.

Posted in Economy, Energy, Government Reform, State Government | Leave a comment

Virginia Should Boost Standard Deduction, Index for Inflation

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One of big financial winners with the May 2021 and then January 2022 Virginia minimum wage increases is the state itself, because the entire raise is subject to a 5 percent state income tax.  With its low standard deduction and personal exemption amounts, Virginia squeezes income tax out of even its lowest wage workers.

In light of the massive tax increases Virginians have seen resulting from Governor Ralph Northam’s recent policy changes, some of the heaviest falling on the state’s businesses, it is clear the state is on a sound financial footing.  An almost unthinkable cash surplus was announced at the end of Fiscal Year 2021, and from that new base even higher state revenues are now expected for several years.

The initial 2019 promise made by the legislature to continue efforts for tax reform, abandoned by both parties after the 2019 election, should be immediately revived.  There is no need to wait for further studies, nor should new Governor Glenn Youngkin feel bound by any proposals from his predecessor.

The recommended focus remains the same as the Thomas Jefferson Institute outlined more than two years ago:

  • Virginia needs to substantially increase the standard deduction it offers to all taxpayers, with the goal of matching the amount offered on their federal taxes.  That would be an increase from $9,000 tax free income for a couple filing jointly to $25,100 for that same couple, removing more than $16,000 from taxable income.  An individual’s standard deduction is $12,550.
  • Virginia needs to index its tax code to inflation, again mirroring federal practice.  Failure to do so, and allowing tax rates to increase due to inflation, is itself a form of tax increase.  This is even more important now because the massive federal deficit spending on individual cash benefits, and other federal actions to overheat the economy, have now produced the kind of inflation many of us remember from the 1970s.

Governor-elect Glenn Youngkin has already endorsed the first proposition but has not yet provided details.  He should complete the task, endorse the second idea and send the Commonwealth back down the road to becoming a low-tax state.  Other ideas he has proposed have merit, but adjusting the standard deduction and then protecting taxpayers from inflation are major, long-term reforms.

Complaints that the state cannot afford this should be hooted down, although it may need to be phased in, starting with a standard deduction increase to $6,000 for an individual and $12,000 per couple.  State General Fund tax revenues are up about 30 percent in just four years, and the explosion from the tax increases and super-heated economy is just starting.  If the Biden Administration gets even part of the tax package it wants through Congress, Virginia will quickly conform to any of the changes that produce additional revenue for the state.  Most of them will.

The next Governor and 2022 General Assembly should act immediately to protect Virginia families and the Virginia economy from what is coming.  Shielding a higher portion of every Virginia family’s income from income tax is easy to explain and provides a level tax benefit to rich and poor.  As a portion of income, it is of far greater benefit to the lower income workers.

In 2019, Virginians were asked about doubling the standard deduction as a method to return some of the coming state tax bonanza due to the 2017 federal tax bill.  By wide and bi-partisan margins they endorsed the idea, but the General Assembly took only a small step and raised the deduction 50 percent.  A major increase in the standard deduction will be just as popular today, if not more so.

The Thomas Jefferson Institute also recommended changes to the corporation income tax in 2019, which again were roundly ignored by leaders of both parties.  It was clear that the federal rules changes in the Tax Cuts and Jobs Act of 2017 would produce an avalanche of new state corporate taxes unless we made state-level adjustments.  Fixing that is of lower priority than the other two goals, a meaningful standard deduction and annual inflation adjustments.

Much of Virginia’s business income is reported and taxed on individual returns, since many businesses are not structured as corporations.  An increase in the standard deduction is of direct benefit to those unincorporated business owners.  For corporations, the higher standard deduction is of benefit to employees and stockholders but not the business entity.

The General Assembly has now decided to increase the state’s fuel taxes annually to keep up with inflation in future years.  It has voted to raise the minimum wage annually due to match inflation.  It is long past time to give the same protection to Virginia’s taxpayers.  The former chair of the House Finance Committee in the General Assembly, Delegate Vivian Watts, D-Annandale, has introduced an indexing bill in prior years, but so far has been unsuccessful.  A Republican-sponsored attempt is expected this year.

Many Democrats share the desire to reduce income taxes on Virginia families by working up from the bottom but prefer to do it with a mechanism called the Earned Income Tax Credit.  Recent General Assemblies have also considered and rejected efforts to make that tax credit “refundable,” meaning that taxpayers who qualify could actually receive an annual check from the state.  The proposal has surfaced again in, but increasing the standard deduction is a better reform.

A refundable EITC does nothing to reduce the tax burden on middle income Virginians because the EITC phases out quickly as income rises.  And it involves the state taking the taxes out of paychecks and then returning them at a later time, rather than simply not taxing it in the first place.  EITC becomes just another government entitlement, more bureaucracy.

Many Democrats also oppose the idea of a higher standard deduction because the benefit is nearly universal, reaching even higher income families if they do not take itemized deductions.  If the federal tax changes President Joe Biden wants are enacted, the higher state standard deduction will make only a small dent in higher tax bills coming their way.

Finally, matching the federal standard deduction brings Virginia into line with a number of other states competing with Virginia for new jobs and residents.   The District of Columbia and South Carolina match the federal amount, and North Carolina comes close.  For most low income Virginia workers and many retirees, there would be zero income tax, the same as in Florida, Texas, or Tennessee.

Posted in State Government, Taxes | Leave a comment

Securing Workplace Freedom and Rights: Ideas for the New General Assembly

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In 2020 the Virginia Assembly changed a decades-old law and allowed local governments to collectively bargain with most public employees. The law went into effect on May 1, 2021 and gives “a county, city, or town… [which includes] any local school board” the ability to adopt a local ordinance or resolution to allow them to bargain with government unions.

As a result, multiple counties, cities and school districts debated and are passing ordinances giving government unions a monopoly on representing public employees. Many of these verge on violating Virginia law or the rights protected by the United State Constitution.  They also put special interests ahead of individual public employees and taxpayers.

While the law may and should eventually be repealed in Richmond, there are steps that law makers and the Youngkin administration can take to protect the rights of public servants.

Recommendation: Protect Public Employees First Amendment Rights and paychecks

The first is to protect the constitutional rights of public employees across the Commonwealth.

Several ordinances allowing government unions to collectively bargain also require public employers to deduct union dues from public employees’ paychecks. There are no provisions informing public employees about their rights before agreeing to pay dues, which is being permitted without even a physical signature. Worse those employees can be locked into paying union dues for up to a year.

Public Employees in Virginia have both a statutory right to choose to pay union fees or not through the state’s right to work law and, like all public employees across the country, a First Amendment Right thanks to the Supreme Court’s decision in Janus v. AFSCME.

Right-to-work simply means that a union cannot get a worker fired for not paying them. Further, Janus held that everything government unions do is political, and because of that, public employees have a First Amendment Right to decide for themselves whether or not to pay union dues or fees.

Virginia could pass a law requiring localities to inform and respect the rights of public employees. Additionally, since it is already a constitutional right, executive action or leadership could also direct localities to respect the rights of their employees.

These actions should require public employers to inform public employees about their First Amendment right to choose to pay dues and should ensure proper bookkeeping by having the public employee opt-in to having union dues deduced from their paychecks directly to their employer. Unions should not be allowed to submit dues deduction authorization cards or a list of employees to the employer. Instead, employees should be safeguarded by having them submit a signed dues authorization card directly to their employer. Finally, voice authorizations, which most of the local ordinances already passed permit, cannot be used by unions to take money from a public employee’s paycheck.

Further, to prevent fraud or misunderstanding, the employer should affirm the wish of the employee by confirming with the employee through email or other means that he or she wishes to have dues taken out of his paycheck.

On the West Coast there are multiple examples of unions forging workers’ signatures on dues authorization forms. The Freedom Foundation of Washington has several lawsuits challenging these forms.

This will help prevent fraud or signatures forged on dues authorization cards which is the subject of several West Coast lawsuits.

To ensure that public employees wish to continue this deduction, this authorization should be renewed annually but public employees should not be limited when they can opt-out of the union and opt-out of paying dues or fees. Local ordinances or state law should be specific that employees can opt-out of the union at any time without paying any more dues. Workers should have the right to leave a union, and to stop paying union dues at any time.  Some ordinances already enacted limit that right.

Recommendation: Union democracy should be protected. 

Public employees should have the right to regularly vote on the union that represents them at the workplace. No local ordinance that has been enacted or proposed includes this right.

For this reason, every two years public employees should have the right to vote to keep the union that has a monopoly representing them at their job, to remove it, or change to another union. Several states have passed laws protecting the right of public employees to regularly recertify the union at their workplace.

When a union is up for recertification the union would need affirmative votes from a majority of all employees in the unit (not just union members) and the election should be conducted by secret ballot as required by Virginia law; however, for recertification elections the votes may be electronic, by phone, or other means that protect the secrecy and accuracy of the election.

Union recertification empowers public employees to choose the representation at their workplace and prevents unions from becoming an heirloom, where employees vote once and the union stays for a generation or longer. In other states with older public sector collective bargaining laws but without union recertification, the vast majority of public employees were hired without ever having a say about which union represents them.

The cost for the electronic elections is also economical, according to a 2015 study by John Wright, a former labor policy researcher at the Show Me Institute in Missouri. Wisconsin’s annual recertification process averages just $1.50 per vote and the cost is paid mostly by union filing fees.

Recertification should also not prohibit the ability of employees to petition to remove the union at their workplace. Again, both certification and decertification procedures are required by Virginia’s collective bargaining law and will be necessary in any ordinance or resolution. Decertification should follow the same guidelines as initial certification where 30 percent of employees sign a showing of interest petition to remove a union and there is a secret ballot vote. Some of the local collective bargaining ordinances already enacted make it much easier to certify a union then to remove one. These ordinances allow unions to organize with a majority of those voting in an organizing election but removing the union requires a higher threshold by a majority of everyone the union represents.

Additionally, employers should also be allowed to instigate a decertification election if they have a good faith belief that a union’s membership has dropped below 50 percent. This can be accomplished by calculating the number of employees having dues deducted from their paychecks compared to the number of employees the union represents.

Recommendation: Prohibit taxpayers from paying for union work

Release time is the practice of public employees who are also union officials getting paid their taxpayer-funded salary to conduct union work while on the job. Employees who need to do union work during business hours should be given time off that is either unpaid or is counted toward their vacation hours.   Monetary compensation should come from the union, not the taxpayers.

A Yankee Institute study by Trey Kovacs reported that in Connecticut “taxpayers subsidized state employee unions with 121,000 hours of paid time off [in FY 2015], costing $4.1 million”

Every ordinance that has passed allowing public sector collective bargaining includes a provision allowing for taxpayer funded release time. However, the practice is not new in Virginia. For example, even before government unions had the ability to bargain in Fairfax both the county and the school district allow for release time.

Similarly, if unions are using employer office space or supplies, they should be charged the fair market value of such space and the office equipment they use.

These recommendations and more are included in Thomas Jefferson Institute’s toolkit “Virginia Collective Bargaining: Recommendations and models for local collective bargaining in Virginia” available at https://www.cbatoolkit.com/ . Print copies of the Toolkit can be requested at Thomas Jefferson Institute 7011 Dreams Way Court, Alexandria, VA 22315 or via email at info@thomasjeffersoninst.org.

Posted in Government Reform, Labor | Leave a comment

A Bold Reform for Education Funding

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(Author’s Note: Eight years ago, we suggested incoming Governor Terry McAuliffe pursue a bold education funding reform that would modernize and supercharge Virginia’s education infrastructure.  He chose not to.  We offer it again, verbatim, to Governor-elect Glenn Youngkin … because we believe the idea crosses ideological lines and party divides and would represent the first full-throated reform of Virginia education funding in decades.  Judging from his appointments, Mr. Youngkin has been more than willing to move beyond “business as usual,” and that tendency portends well for the Commonwealth.)

George Allen and Standards of Learning reform.  Jim Gilmore and car tax reduction.  Bob McDonnell and transportation reform. That’s what we remember.

So what does Governor-elect McAuliffe want to be remembered for when he walks out of the office?

How about reforming K-12 education through “Weighted Student Funding?”  This is a concept attracting attention from Governors as diverse as Jerry Brown (D-CA) and Rick Snyder (R-MI), and policy analysts from Ronald Reagan’s Secretary of Education Bill Bennett to John Podesta, who chairs the center-left Center for American Progress.  Here’s why –

Johns Hopkins professor Dr. Susan L. Aud summarized Virginia’s education funding formula like this:  “To determine the Basic Aid associated with each student in a school division, the maximum number of teachers the state will fund for each grade level in each division is calculated, based on the ADM (Average Daily Membership) and pre-determined guidelines for the minimum and maximum number of students per type of teacher.  The average salary for each type of position is then multiplied by the number of positions required by the enrollment to arrive at a total allowable salary cost.  This number is divided by the number of students to derive an average Basic Aid dollar amount per ADM, known as the Basic Aid PPA.”

If you’re confused, you’re not alone.

This formula is intended to fund Virginia’s Standards of Quality (SOQ).  Created more than 40 years ago, when Virginia was finally coming out of the segregation era, the SOQs were designed to ensure an equivalent standard of quality inputs:  textbooks, teachers, principals, and other instructional components.  The formulas funded those inputs:  If you have “x” number of students, you need “y” number of teachers.

But the world has changed in 40 years.  Educating low-income, highly mobile, Limited English Proficient, or disabled students simply takes more, and our funding formulas fail to recognize that harder (and more expensive) task.

Worse, while principals and teachers are now held accountable for their results, they have little control over how money is used at their school or in their classroom.  How school dollars are spent is decided elsewhere, using complex budgets and allocations that leave educators, parents, and taxpayers in the dark.

This gives us with the worst of all worlds – expenses that can’t be tracked or understood, funds that don’t reach the targeted populations, and an inflexibility both archaic and inefficient in a 21st Century world.

A “Weighted Student Funding” mechanism is designed to provide increased budget transparency, local school flexibility, and targeted resources.  Details differ around the country, but it operates on five fundamental principles –

  • Funding should follow the child, on a per-student basis, to the public school that he/she attends.
  • Per-student funding should vary according to the child’s need and other relevant circumstances.
  • Funding should arrive at the school as real dollars (i.e., not teaching positions, ratios or staffing norms) that can be spent flexibly, with accountability systems focused more on results and less on inputs, programs, or activities.
  • These principles for allocating money to schools should apply to all levels (federal, state, divisions and schools).
  • Funding systems should be simplified and transparent.

The idea is simple:  Determine a dollar value for each student.  Make it higher for students requiring more help.  Drive those dollars down to the school level, empowering school-based leadership to decide how best to spend the funds educating the students.

By putting resources for decision-making at the school level, principals can do for children what’s needed at their school, not what’s decided at the division level.  If one school needs more tutoring, or another needs an additional aide, or a third needs more teacher training for new teachers – the school chooses, rather than a “one-size-fits-all” central office decision.

To be sure, there are plenty of questions:  Which decisions should be centralized? Which should not?  How much weight should be assigned to different student categories?  Should local funding be included, and how?  Will any school divisions “lose” state funding under such a system? How can they be “held harmless?”

But that’s precisely why the time to think about such a reform is now—not in the third year of an Administration.  A blue-ribbon panel – with experienced national experts as well as state leaders well-versed in the current system – can start exploring the idea with a long-term deadline that looks over the horizon of the next legislative session.  Finding a solution shouldn’t be limited to a political deadline.

It’s time to put reform of education funding on the table – not with a timid “nibble around the edges” discussion but with a major overhaul that merits full-throated debate and recognizes the demographic and social forces confronting education in Virginia.

Getting that done would be a notable accomplishment, and one worth being remembered for.

Posted in Education | Leave a comment