Theoretically, if you draw down on a well or aquifer too far, you might start getting dirty or muddy water. It happened to us on our well regularly in the summer.

But it staining the clothes? That doesn't make sense.

I'd take it with a grain of salt. The stuff people bring to city council meetings is usually pretty crazy.

Could be iron rich soil

They poisoned our water supply, burned our crops and delivered a plague unto our houses!