r lane: Yes you re correct about the step, my mistake. I was confusing that with removing shims (what I did) and cutting the cylinders.
Anyway, If you are willing to spend the money on that machine work, including shortening the cylinders, that's about the most you can do, short of changing the pistons. BTW, shortening the cylinders will not "reduce the CR," that will increase it.
You could shorten the cylinder up to .020", which would give a step clearance of .030" which is as tight as I would want to go. That would also reduce the piston-to-head clearance from .070" to .050". Then you could flycut the head mating surface .020" to get that clearance down to .030" which again is as tight as I would go.
These cuts would move the cams .040"/1mm closer to the crank. Can your tensioner take up that additional slack? IME, in earlier engines, they can. I don't know about 3.6 engines. Check your tensioners before you take it apart, if you haven't already. Do they have plenty of room?
Re cutting just the mating surface, so that the remainder of the head actually sticks down past the top of the cylinder--I have not heard of anyone doing this. Maybe Neil or Henry have tried it. It would save machining the cylinders.
Edit: I just did a quick calculation of CR change. Shortening the cylinders .020" will increase the CR by about 0.6. That seems high to me, so check it.