Municipal Finance Consequences of PFAS Contamination Discovery

Abstract

Widely manufactured since the 1940s, hazardous per- and polyfluoroalkyl substances (PFAS) remained unregulated under U.S. drinking water standards until 2024. Using a paired-county difference-in-differences design exploiting the 2016 discovery of drinking water PFAS contamination under the first nationwide systematic testing, we document deteriorating municipal finance outcomes in contaminated counties driven by household and firm responses. Municipal bond offering yields and credit risk increased, while revenues and expenditures declined. Within-state household out-migration increased, tradable-sector wages rose while tradable-sector employment and the number of firms declined, alongside rising county unemployment. Overall, discovery of past environmental contamination adversely affects municipal finance through deteriorating local economic outcomes.

Keywords: Municipal Bonds, PFAS (Forever Chemicals) Contamination, Drinking Water Contamination, Household Flight

JEL Classification: G14, H72, H74, Q53, Q58.