New Terminal behavior after upgrading to OS X 10.11
The short answer is "Hide Marks" in the "View" menu of Terminal.

After I discovered the behavior wasn't specific to emacs, I started looking at Terminal more critically.

In the Edit->Marks menu there is an option 'Automatically Mark Prompt Lines' which defaults to on for El Capitan.  Disabling this option will stop the addition of new "marks".  You can remove specific marks using Cmd-Shift-U on the line you want to remove the mark from.  And finally "Hide Marks" to turn off the visual indicators of the marks.

After removing emacs from the list of suspects, I found several other similar questions on Ask Different, Super User and Stack Overflow that all reached the same conclusion. 

Commenter nwinkler provided a link to his research on what marks are and how this feature can be used.  Thanks!