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if unable to operate STRs. Second, many homeowners in the City purchased homes in the City with the reasonable expectation that they would operate them as STRs, because the City's current ordinances permit that use, as discussed above. Given this, the proposed prohibition represents a significant interference with hosts' investment -backed expectations. Third, the government action in this case is an arbitrary and capricious prohibition on STRs in the entire City, which, as described throughout this letter, violates state law and infringes on our constitutional rights. Given these factors, the proposed prohibition would threaten to subject the City to numerous compensation claims from impacted hosts. Once again, the Dallas district court reached a similar conclusion as to the STR restriction there, holding that Dallas ordinance "likely constitute[d] a taking of Plaintiffs property, particularly those properties that were acquired and improved upon for the purpose of operating an STR." (Dallas Short -Term Rental Alliance Order at 5). A California court would likely reach the same conclusion. Right to Contract The proposed prohibition could also violate our Right to Contract under the federal and state constitutions, which prohibit laws impairing the obligation of contracts. (U.S. Const., Art. I, § 10; Cal. Const., Art I, § 9.) We hosts have already agreed to rent our property on a short term basis to guests in upcoming months. An immediate prohibition on STRs would invalidate those contractual obligations of STR owners in violation of this constitutional right. The City Must Conduct Additional Analysis under the California Environmental Quality Act Under the California Environmental Quality Act ("CEQA"), a local agency must prepare an Environmental Impact Report whenever a project "may have a significant effect on the environment." (Pub. Res. Code, § 21151). The Ordinances include a City Council finding that they are exempt from CEQA because "the activity will not result in a direct or reasonably indirect physical change in the environment and ... because the activity is not a project [under CEQA] ... because it has no potential for resulting in physical change to the environment, directly or indirectly . . ." (Urgency Ordinance, § 5.) This conclusion, without any further comment or explanation, is not supported by the evidence and is inconsistent with the goals and purpose of CEQA. (Davidon Homes a City of San Jose, 54 Cal. App. 4th 106 (1997).) If the City prohibits STRs, guests will be forced to find transient accommodations outside of City limits. Removing all existing STR accommodations from the centrally located City will almost certainly change traffic patterns. This shifting of traffic from within the City to other locations could have significant environmental impacts, including increased vehicle emissions from people traveling further distances to their vacation destinations or temporary/transitory places of employment and residence. This could result in air quality impacts to residents of Santa Ana and potential traffic impacts at new locations. Although it is uncertain whether the total impact will be significant enough in the end to require a full Environmental Impact Report, courts have concluded that such potential impacts are sufficient to require at least an Initial Study regarding the need for such a report. For example, in 5