Sweden’s decentralised municipal structure creates a complex setting for digital transformation. Despite national strategies promoting artificial intelligence (AI), adoption remains uneven across municipalities due to regulatory uncertainty, budget limitations, and ethical concerns. This study investigates how technological, organisational, and contextual factors influence AI adoption and how municipalities manage trust and transparency. Drawing on the Technology–Organisation–Environment (TOE) framework and Public Value Management (PVM) theory, data were collected through a survey of municipal officials and analysed using descriptive statistics, regression modelling, and thematic analysis. Findings show leadership support as the strongest enabler, while inadequate infrastructure, unclear legal frameworks, and low public trust hinder progress. Limited budgets further restrict implementation, though collaboration and shared learning present underused opportunities. The study highlights the importance of strategic leadership, transparent governance, and inter-municipal cooperation to promote trustworthy and sustainable AI adoption in local government.