Municipal and Economic Consequences of PFAS Contamination Discovery

Abstract

Hazardous but previously unmonitored and unregulated, per- and polyfluoroalkyl substances (PFAS) were detected in 2016 in municipal drinking water systems across 33 US states during the first-ever PFAS testing. A paired-county difference-in-differences design that compares contaminated counties with neighboring, same-state uncontaminated counties shows that the contamination discovery raised municipal bond offering yields by 14 basis points. Municipal revenues, taxes, employment, and expenditures declined, while population out-migration increased. Consistent with the contamination requiring a higher compensating wage differential, wages in tradable industries rose, but job creation fell, and firm closures increased. Self-employment increased as well, indicating a heightened local unemployment risk.

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

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