I'd fix the block too. the engine can run without ported heads
x3...
The block is the baseline for everything else you do above this point.
This is the point were people learn just what it means to build an engine...properly...any skimping done now can come back in bite you later. Performance isn't cheap, but more importantly performance built on cut corners is a recipe for failure...
That .010 scratch in the side of your cylinder can possible lead to blown rings if you try to boost that motor. It can lead to hot spots within the cylinder that can cause scorch marks later under boost pressures...
With the damage done to the cylinder, you have no idea what the line hone looks like on that engine...or even the crank for that matter...
IIRC, you said you had $1100 for the engine build...a cam and springs alone are going to set you back around $600...more than half your budget...now add a rebuild kit for around $400 and you only have $100 for incidentals (radiator, sensors, plugs, wires, etc)...that same $600 can more than likely do all the machine work...
Personally, I would skip the cam, get the block work done, and possibly port the heads...this alone will improve the performance of the engine. Better yet, everything has been set up for when you can put a cam in it...which can be done in a weekend...
You can spend your money however you want, but I fear something that I've seen a
thousand times...common sense gets thrown aside for the sake of "more power" and the build turns into a cluster f*#k that becomes a money pit when everything that should have been addressed the first time starts failing one after the other...
Prime examples can be found on Craigslist where you will see failed build after failed build being put up for pennies on the dollar...they usually come with the tag lines "engine only has 3000 miles since rebuild"...in other words, they don't say that there is anything wrong, but who gets rid of a car that they just spent six months to a year trying to build, for a pittance? People who have run out of money trying to piece their car together and had spent all their money in the wrong places...that's who...
Food for thought...