ST. PAUL (AP) - Minnesota's projected budget deficit has shrunk to $627 million, which is down more than 40 percent from the last estimate.

State lawmakers have just less than three months to figure out how to fix it.

The updated economic forecast released Thursday by state finance officials sets the tone for a legislative debate over a two-year budget.

The last forecast, released in December, showed a $1.1 billion deficit. That's the one Gov. Mark Dayton used to build his budget. He will release a supplemental budget sometime in March to account for the changed projection.

Republican State Representative Tim O'Driscoll of Sartell says this new number is good news for the state, and may force Governor Dayton to take some of the increased tax proposals off the table.

O'Driscoll says the budget forecast for the next biennium, after this current two-year cycle, shows a $700 million surplus.

Republican State Senator John Pederson of St. Cloud says, with the smaller deficit, some of those tax changes should come off the table - specifically Dayton's plan to broaden and lower the sales tax.

State lawmakers have less than three months to figure out how to fix the $627 million shortfall.

The better news could prompt Dayton to scale back his proposed tax increases.

Minnesota legislators have hesitated from plunging too deeply into the budget process until receiving the new economic report.