Environment Minister Lily D’Ambrosio made a condition of councils receiving the money that they provide evidence they were seeking alternatives to dumping recyclables at the tip.
The councils must also work with the state government towards a proposed national ban on exporting reyclable waste.
The government has flagged that extra household bins may be introduced.
Monday’s funding package is the second time the state government has bailed out Victorian councils from the extra cost of sending recyclable materials to landfill.
Last February it gave councils $13 million to help defray the extra cost of dumping household recyclable waste instead of it being taken by recycling companies.
SKM is one of three recycling processors in Victoria, and until last month collected almost half a million tonnes of recyclable materials every year.
In early 2018, China – which was taking millions of tonnes of recycled material from Australia each year – imposed a higher standard on the acceptable level of contamination.
SKM, already under pressure after a massive 2017 fire at its Coolaroo sorting plant, had to dramatically improve the quality of material sent overseas. Instead, it collapsed.
The government’s Environment Protection Authority has long been aware that, instead of sorting recycling, SKM was stockpiling it.
Despite this, the government on Monday admonished SKM for “significantly undercutting the prices of other recycling providers”.
Ms D’Ambrosio said the latest financial assistance to councils would help them meet the real costs of recycling “after decades of a failed business model from SKM”.
“This short-term financial relief supports councils immediately, while all levels of government work together on a longer-term solution that must include an overhaul of kerbside recycling,” she said.
After SKM’s 2017 fire, with councils still bringing it thousands of tonnes of waste, the company came up with the ad hoc solution of storing recyclables in huge warehouses all over Melbourne’s north-west.
This month, with SKM Corporate declared insolvent, an estimated 200,000 tonnes of waste that belonged to it is now stranded in six massive warehouses and in more than 700 shipping containers the insolvent recycler had rented before going out of business.
Despite its inability to do anything with the waste it collected, SKM’s contracts with 30 Victorian councils required it to keep accepting their materials.
Last week the Morrison government struck a deal with the states to ban exports of plastics, paper and glass, although no timeline has been set.
The Andrews government said targets may be considered to encourage the use of recycled materials, such as glass for roads and railway sleepers made from plastic.
On Monday, the liquidator of SKM Corporate, David Ross, said he was still waiting on a report on company activities and property from the company.
Mr Ross said he had received calls from other businesses expressing interest in buying SKM, its assets or taking over management of its recycling stockpiles. “We’ve referred them to the receivers,” he said.
Benjamin is a state political reporter
Clay Lucas is a senior reporter for The Age. Clay has worked at The Age since 2005, covering urban affairs, transport, state politics, local government and workplace relations for The Age and Sunday Age.