Tax Increment Financing (TIF) is, at its core, a financial tool used by local governments to help fund economic development in deteriorating, blighted, or distressed areas; there are only certain scenarios, properties, and developments that can be funded by a TIF, and without its creation, economic development would not and could not take place.
What is a TIF District? Established by City ordinance, a TIF District is the boundary in which the tax increment financing takes place.
All landowners in a TIF district pay taxes based on the value of their property, just like how residential homes have taxes that are based on what the property is worth. In a TIF district, the base value of properties are frozen for a period of time. During this time, the base tax revenue from the property stays the same and goes to all the usual entities (i.e. schools, parks).
As development occurs in the district, the property value rises, and the property owner pays more in taxes. The incremental increase in property tax obligation is the "increment" part of TIF and is where TIF proceeds are created. Instead of collecting the tax and distributing it to all the taxing entities, the increment is used to pay for blight remediation and infrastructure needed to make the land ready for redevelopment.
The TIF is a refund system; when the developer cleans up blight or builds TIF-qualifying infrastructure (streets, sewers), they get reimbursed from the fund, which they can now use for more cleanup and infrastructure.
An important consideration when forming a TIF is the principal that the blighted property will remain blighted, unlikely to be invested in, and will therefore will likely not be redeveloped unless an economic incentive is provided. Incremental TIF revenues would therefore never occur.
Local taxing entities don't "lose out" because the additional property tax would never haven been collected in the first place.