Well, it could work. If the local government gave a shit. Which they don't, because Texas. But the water going into a datacenter does come out... The main downside being that it's hotter (which is a limiting factor, you can't run it in a loop without some big cooling system, and rivers/lakes are by far the most effective way way to do that).

The article I saw doesn't say what the problem is exactly. Is the datacenter pumping from an aquifer rather than a lake/river? Are they raising the temperature in ways that affect the environment negatively? Are they abusing the municipal water supply instead of pumping their own water, forcing the taxpayer to essentially subsidize their infrastructure? Lots that could go wrong, but it's all shit that should be fully figured out during the permitting process.