Artificial intelligence (AI) is becoming an increasingly important factor of everyday life. The progress of AI adoption continues to accelerate with increasing investments in AI techniques and applications worldwide. However, the use of AI is still not present in employee's daily life of German municipalities. Since this technology has a promising potential that German municipalities can also take advantage of, it is important to facilitate the transition of municipalities to AI. For this reason, we have conducted semi-structured expert interviews in twelve German municipalities to examine perceived challenges of AI adoption from employee's perspective. Using methods from Grounded Theory and Gioia we extended research regarding the Technology-Organization-Environment (TOE) framework. Our results proof six and identified four additional perceived challenges of AI adoption in municipalities. With these results, we are able to extend literature on the use of AI in the public sector introducing perceived challenges of AI adoption from employee's perspective in municipalities extending the TOE Framework.