Any math majors here? OHC head milled.....

Your math is correct, the cam will be retarded by about 2 degrees (1.62 for a 1.7mm cut). Typically there are adjustable cam sprockets available for the engines that have a "performance" following. Not sure which Mazda engine you have, but I know they are available for the engines used in the MX5/Miata.

A shorter chain/belt won't fix the problem here, unless the tooth pitch is reduced on the chain and sprockets. Yes, the chain is about 4mm too long now, but the tensioner should be able to compensate. Cam timing is controlled by the tension side, the tensioner is on the slack side to reduce whip (noise).

Why on earth did they take off that much?!? If the head was that warped, it is most likely junk now. With most modern OHC heads, Japanese, German etc..., the cam bearings are part of the head casting. Wear isn't a big deal usually, but head warpage is. If the head deck surface warped significantly, so did the cam bore centerline. If the deck surface is corrected, the cam bores might not line back up once the head is torqued back down. Knew a guy a few years back who kept breaking cams in his Honda. Misaligned cam bores due to a previous overheat was the problem. Might not be an issue in your case, but food for thought