Participatory budgeting tends to manifest as a civic engagement tool governed by the state, but in Hamilton, Canada, a unique albeit short-lived public budgeting system jointly governed by state and civil society institutions was established. State and civil society actors struggled over who had power over the governance and administration of the system, and eventually the state actors dissolved the budgeting system and instituted a new one that excluded the civil society institutions. Public participation in the exclusively state-managed budgeting system dropped by 43%, and by the third year state actors were proposing to discontinue participatory budgeting. Civil society leaders rejected this proposal and demanded the continuation of participatory budgeting and the re-recognition of civil society institutions, which the state actors accepted. This thesis builds on the Hamilton case, democratic theory, and theory of the state and civil society to show a potential pathway from liberal to participatory democracy.