The last day of February brought more than $1 billion in relief for Democratic Gov. Mark Dayton and Republican legislative leaders, who learned that they have a $5 billion shortfall to fix rather than $6.2 billion.

The improvement in the state’s budget forecast was more substantial than expected and sets the official numbers for projected revenue and spending that lawmakers will work off of in developing a new two-year budget. But even a billion dollars in improvement doesn’t change the basic outlook, said Rep. Tony Cornish, R-Good Thunder, recalling the $4.5 billion shortfall the state faced in his first legislative session in 2003.

“I remember how tough that was,” Cornish said. “So even reduced, this is huge.”

The gap between projected spending and projected tax revenue is actually better than what Minnesota faced two years ago, when a $6.4 billion shortfall was forecast. There’s a big difference this year, though, said Rep. Terry Morrow, DFL-St. Peter.

“We don’t have a federal stimulus this time to fall back on,” Morrow said.

In 2009, $1.8 billion in federal funding was headed Minnesota’s way as part of the fiscal stimulus bill passed by President Barack Obama and the then-Democratic Congress.

That money eased the cuts required then, but Cornish said he asked one question repeatedly during budget discussions: “What are you going to do at the cliff when you run out of (the stimulus funding)?”

Republican lawmakers will provide their answer over the next three and a half weeks as they finalize budgets in the House and Senate. They’ve set a self-imposed March 25 deadline for each finance committee to complete its piece of the puzzle.

Dayton will also send lawmakers a revised budget based on the new forecast. On Monday, he said he would drop his proposal for an income tax surcharge on Minnesotans earning more than $500,000 a year — a temporary tax that would have raised $918 million for the upcoming two-year budget cycle.

Dayton also promised to ease cuts to nursing homes, programs for people with disabilities and other health and welfare programs. He proposed approximately $200 million in reductions to those programs in his budget plan two weeks ago, a move that was strongly criticized by organizations representing caretakers for the elderly and disabled.

The cuts also prompted Morrow and Rep. Kory Kath, DFL-Owatonna, to write a letter to Dayton last week urging him to restore that funding with any additional revenue from the updated forecast. About 15 other House Democrats signed on.

The new forecast from Minnesota Management and Budget shows $984 million more in revenue than predicted by the previous forecast in early December. The improvement is largely credited to increased economic activity and capital gains stemming from the tax cut legislation negotiated by Obama and congressional Republicans in December.

Tax cuts leading to economic growth is a key Republican talking point, but Democrats also got something to work with out of the forecast. Responding to questions, state economist Tom Stinson said the state’s economic growth will be harmed by both Dayton’s approach to erasing the $5 billion in red ink — which still includes steep tax increases for wealthier Minnesotans — and the Republican Legislature’s cuts-only tactic.

Stinson said, however, that $5 billion in spending cuts would do somewhat more harm because it would depress consumer spending more than would tax increases on top earners.

Cornish said a cuts-only approach will be difficult, but Republicans are determined to follow through on their pledge to rein in spending. As chairman of the Public Safety and Crime Prevention Committee, Cornish will be focused on cutting those portions of the state budget.

The increased revenue in Monday’s forecast isn’t going to eliminate the pain, he said. Instead, it might mean work force reduction through attrition rather than outright layoffs.

Many of his colleagues are expecting the first round of budget bills to be vetoed, said Cornish, who added that he hasn’t given up hope of crafting a bill Dayton will accept.