What does water scarcity have to do with anything? Data centers don't use water. They slightly heat it, and then it flows back out to whatever it would have done anyway.

They need fresh water which is scarce unlike salt water, once they use it, it can't be used for anything else. They're competing with water supplies of municipalities these days. Not a big deal if you're near the great lakes or the missisipi, but a big deal in california, arizona, utah,etc.. and that's just the US. There are places that are becoming unlivable because of water supply issues, and datacenters are needing to be built near them.