(a) A municipality may create a district as provided in this chapter in:
(1) all or part of the boundaries of the municipality;
(2) all or part of the boundaries of the municipality and all or part of the boundaries of the municipality's extraterritorial jurisdiction; or
(3) all or part of the municipality's extraterritorial jurisdiction.
(b) The municipality may include territory outside of the municipality only to the extent that territory is in the municipality's extraterritorial jurisdiction.