It’s been nearly five years since state officials received better news about Minnesota’s budget outlook than they did Wednesday when a $701 million budget surplus was forecast by state economists.

Lawmakers were pleased that the 2006 legislative session, which begins March 1, won’t be dominated by budget cuts the way the previous four sessions have been.

“Obviously it’s positive,” said Sen. John Hottinger, DFL-St. Peter. “We don’t have to make any more awful cuts.”

But legislators from both political parties cautioned against any dreams that the projected surplus will bring significant tax cuts or the restoration of all the spending that has been slashed in recent years.

Current law requires the entire surplus to be used to restore spending shifts involving payments to schools, an accounting maneuver used to technically balance the budget during the lean years. Lawmakers and Gov. Tim Pawlenty can choose to change the law and only partially correct the spending shift in order to use some of the surplus for spending or tax relief, but Hottinger advised against it.

“It would be tempting but it would be imprudent,” he said, noting that restoring the shifts is the only way to make that tool available to deal with future red ink. “We need to be responsible and prepare for a future deficit.”

Although decisions about tax cuts and spending sometimes have unexpected impacts on future budgets, the state’s budget fortunes generally rise and fall with the national economy. On Wednesday, state economists credited an expanding American economy for boosting corporate, income and sales tax revenue above what had previously been expected.

It was the opposite case in November of 2001 , when an economic recession exacerbated by the Sept. 11 terrorist attacks created the first of a string of projected deficits that lasted until Wednesday. Pawlenty and lawmakers responded with accounting gimmicks, spending cuts, fee increases, tuition hikes and other measures in one contentious legislative session after another.

The result is a strong backlog of spending needs — at least in the eyes of the interest groups and legislators who have favorite budget areas. So there’s likely to be strong pressure to not fully fix the school funding shift. In addition, there’s $317 million that was left in a special account at the end of the 2005 fiscal year that could now be spent.

And the projected surplus could grow between now and the start of the next legislative session because a new forecast will be issued in February.

Still, compared to a $30.5 billion two-year state budget, the pool of available dollars is relatively small, lawmakers said.

“This is a good sign, but it’s just a good sign,” said Rep. Tony Cornish, R-Vernon Center. “If you divide it all up between all the needs, it’s not nearly enough.”

Cornish wants to make sure state reserve funds are adequate. If funding is available after that, he said his first priority would be more spending for state colleges to help ease tuition increases. He’d also favor funding for schools, restoring cuts in human services programs, and fixing a funding shift inflicted on counties.

Rep. Ruth Johnson, DFL-St. Peter, puts the Clean Water Legacy legislation at the top of her list for any funds available from a surplus. The proposal, which would cost $40 million in 2006 and $80 million a year after that, would help the state meet federal regulations for water clean-up and is supported by a variety of environmental, business and government groups.