Hill Country residents push water utility to say no to data center

SAN MARCOS — No data centers have been built as of yet in the rolling ranchland on either side of the boundary between Hays and Guadalupe counties, about 9 miles south of San Marcos and 5 miles east of Interstate 35. But investors have drawn up plans to turn that quiet stretch of cattle country into a computing cluster along the lines of San Antonio’s far West Side.

At least five data centers have been proposed on or near York Creek, a tributary to the San Marcos River, according to public records and research conducted by a network of activists and residents who say the projects would strain the area’s water supply.

On Wednesday, the extent of that opposition was on display at a board meeting of the Crystal Clear Special Utility District, an area water utility. An Austin-based company named Palomino Alpha LLC is asking the district to supply half a million gallons of water a day — enough to service 1,667 residential homes — for a 940-acre data center to be built beside an electrical substation on Texas 123, along York Creek

The utility’s six-member board voted to delay consideration of the request after more than two dozen people spoke against the project. The opponents said they are concerned that the data center would create noise pollution and a “heat bubble” affecting the health of livestock on neighboring properties. They also contend it could pollute the creek.

 Palomino Alpha has requested a permit from the Texas Commission on Environmental Quality to discharge up to 500,000 gallons of water a day. The company does not appear to have disclosed what would be in the discharge; the TCEQ permit states that the discharge would be treated by a “series of conventional wastewater treatment plan processes.”

“We have an actual vested interest in this community, unlike these data centers, which have a vested interest in extracting as much as they can from our resources,” said Amber Lunsford, a San Marcos resident. “We don’t have enough water to support these data centers. That is very clear from the science.”

Crystal Clear gets its water from several sources, including the Edwards Aquifer, the San Marcos River, the Guadalupe River, Lake Dunlap in New Braunfels and the Carrizo-Wilcox Aquifer in Seguin.

Guadalupe County Judge Kyle Kutscher, who owns land on which part of the data center would sit, told the board that the project would provide crucial tax revenue just as the county’s public services have come under strain due to new residential development. He described the local school district, Navarro ISD, as suffering from a teacher shortage due to its classrooms being “overrun” with new students. The district has maxed out its bond capacity, he said.

“They’re in a struggling position,” he said of the school district. “A project like this that does not put a bunch of kids into the schools, does not need more fire stations, law enforcement… provides the type of revenue to help offset that. Without a diversified tax base, we are going to drown in additional debt, more problems.”

Palomino Alpha wants to build the data center on land owned by Kutscher and others; it hasn’t yet bought the land, and it’s unclear whether the land is under contract.

In December 2024, the Guadalupe County Commissioners Court approved a 10-year tax abatement agreement with Palomino Alpha on a 4-0 vote, with Kutscher abstaining. Under the agreement, the county will abate 90% of the project’s property tax in its first five years of operation, with that amount lowering each year before landing at 40% in the 10th year.

The county signed a similar agreement for another data center, proposed by Cloudburst Data Centers, in April on a 3-2 vote. The Cloudburst data center would operate on a 706-acre property directly west of the Palomino Alpha site. Construction of the facility, with 12 buildings spanning a total of 3 million square feet, is set to begin this year and wrap up in 2029, according to a presentation the company gave to the Guadalupe County Commissioners Court.

Wednesday’s meeting demonstrated a major hurdle faced by those who oppose construction of data centers in unincorporated rural areas: a lack of regulatory tools to stop them.

Crystal Clear’s board president, Nick Reininger, and its general counsel, Howard Slobodin, said the utility does not have the authority to deny water requests because of environmental concerns. Reininger said he feared the board members could be sued by Palomino Alpha if they exceeded their purview.

Some board members disagreed, saying the project’s environmental impact should be considered. Three of the six board members expressed skepticism of the project, with one, Jamie Trant, suggesting a subcommittee be formed to study it.

“How will this affect us here? That’s what I want to know,” board member Cheryl Patterson said. “I want to see actual numbers. What animals is it going to impact? What wells is it going to impact?”

Elected officials across Texas have said they do not have the regulatory tools to control data center development, including in Hays County. Texas Agriculture Commissioner Sid Miller has called for a temporary moratorium on new data centers. Both Lt. Gov. Dan Patrick, who leads the Texas Senate, and House Speaker Dustin Burrows have tasked lawmakers with studying the water and energy demands of data centers before the next legislative session begins in 2027.

“Very much like Crystal Clear, counties in the state of Texas have very little authority to regulate, slow or stop the development that is occurring,” Kutscher said at Wednesday’s meeting. “That is the playing field that the state legislature has set up. We want our county to look like it did a long time ago, but do not have the tools to change that. We cannot tell somebody we don’t want that development.”

In February, opponents of data center construction in the San Marcos area won a victory when the San Marcos City Council voted 5-2 to deny approval of a 200-acre data center that was proposed about 3 miles west of the Palomino Alpha site. The Palomino Alpha and Cloudburst sites are outside the San Marcos city limits and not subject to the council’s jurisdiction.

Tom Dubel, a representative of Palomino Alpha, said at the meeting that the project would generate at least $4 million of property tax revenue for the school system, creating between 100 and 200 jobs.

Formed in 2024, Palomino Alpha LLC is managed by Yarrington Land Holdings, an Austin company that specializes in assembling large swaths of land and obtaining the necessary regulatory approvals for water and electricity, according to records from the Texas Secretary of State.

Apart from Kutscher, three local residents attended Wednesday’s meeting to speak in support of the project. Shawn Popovich of San Marcos told the board that artificial intelligence — for which many data centers are being built — “is here to stay, and only companies that invest in them, entities and businesses, they are the ones that are not going to be left behind.”

Torrie Martin, a massage therapist who keeps horses on a property on York Creek Road, came to tears as she described how the area’s cattle depend on water from that creek.

“We like our rolling farmlands,” she said, “and they’re not making any more of that.”

Staff writers Karoline Leonard, Rebekah F. Ward and Megan Kimble contributed to this report.