The governing body of a county or of a municipal corporation may designate priority funding areas as provided in this section. The governing bodies of two or more adjoining counties, two or more municipal corporations, or any combination of adjoining counties and municipal corporations may designate, as provided in this section and in accordance with the regulations adopted by the Department of Planning, a priority funding area that combines two or more contiguous areas located in each of the local governments. An area zoned or, if applicable, classified by January 1, 1997 principally for industrial use may be designated as a priority funding area. An area zoned or, if applicable, classified after January 1, 1997, as industrial may be designated as a priority funding area if the area is served by a public or community sewer system. An area where the principal uses of the area are for employment may be designated as a priority funding area if: the area is served by public or community sewer systems; or public or community sewer systems are planned in the approved 10-year water and sewer plan. An area zoned or, if applicable, classified after January 1, 1997 as industrial, or where the principal uses are for employment, in addition to meeting the criteria set forth in paragraph (1) of this subsection, shall be located within a locally designated growth area. A community in existence prior to January 1, 1997 that is within a locally designated growth area may be designated as a priority funding area if the community: is served by a public or community sewer system and in that part of the community designated by the local government for residential use or development: there is an average density of at least 2.0 units per acre; or if a portion of the community is undeveloped, the permitted average density is not less than 2.0 units per acre; or except as provided in paragraph (2) of this subsection, is served by a public or community water system and in that part of the community designated by the local government for residential use or development there is an average density of at least 2.0 units per acre. The provisions of paragraph (1)(ii) of this subsection do not apply to mobile home parks or communities with less than 10 units. Funding for a growth-related project under paragraph (1)(ii) of this subsection is to be provided only if the project serves to maintain the character of the community and does not serve to increase the growth capacity of the community except for limited peripheral or in-fill development. If an existing community receives a public or community sewer system, an area beyond the periphery of the developed portion of the existing community may be designated as a priority funding area if the development of the area beyond the periphery: has a permitted average density of at least 3.5 units per acre; and the area is served by a public or community sewer system. The Department of the Environment may provide funding for a sewer system in an existing community beyond the periphery of the developed portion of the community if the expansion has a permitted average density of at least 3.5 units per acre. An area, other than an existing community under subsection (d) of this section, may be designated as a priority funding area if: the area: is within a locally designated growth area of the local government; and is planned to be served under the approved 10-year water and sewer plan; the designation represents a long-term development policy for promoting an orderly expansion of growth and an efficient use of land and public services; and in that part of the area designated by the local government for residential use or development, there is permitted an average density of not less than 3.5 units per acre. A rural village may be designated as a priority funding area under this section if: the village is designated in the county comprehensive plan as of July 1, 1998; and the boundary of the priority funding area is the periphery of the developed portion of the village as of July 1, 1998. Funding for a growth-related project under this subtitle is to be provided only if the project serves to maintain the character of the community and does not serve to increase the growth capacity of the village except for limited peripheral or in-fill development. The designation by a county, municipal corporation, or multiple local governments as provided in subsection (a)(2) of this section, of a priority funding area under this section shall be based on: an analysis of the capacity of land areas available for development, including in-fill and redevelopment; and an analysis of the land area needed to satisfy demand for development at densities consistent with the master plan. For the purposes of this section, average density shall be calculated based on the total acreage of all parcels in the area for which the principal permitted use is residential, excluding land: dedicated for public use by easement in perpetuity or fee acquisition; or dedicated recreational use; subject to an agricultural easement under § 2-508 of the Agriculture Article; subject to an agricultural easement under a county agricultural land preservation program certified under § 5-408 of this title; used for cemetery purposes; identified by a local government as: streams and their buffers; 100-year flood plains; habitats of threatened and endangered species; and steep slopes; and on which development is prohibited by local law or ordinance; or identified by a local government as delineated nontidal wetlands on which development is prohibited by State or local law or ordinance.