This dispute is being framed as big bad TDOT bullying small business people up in Townsend.

A hotel operator complained to TDOT about the city arbitrarily enforcing state right of ways, noting there are plenty of other encroachments including a gas station and campground swimming pool that have been there for decades. TDOT responded by saying they would take steps "to have unpermitted encroachments removed from the state highway right of way."

If you read between the lines, it sounds more like TDOT is siding with the hotel operator and warning the city that if they can't play nice TDOT will step in and make everybody stand in the corner. (You also have to wonder what kind of bad blood led to this in the first place.)

I predict this will get resolved posthaste, any existing encroachments will get grandfathered in de facto, and the hotel operator will find the city suddenly interested in being more flexible.