If you look at the man file for local
(which is actually just the BASH builtins man page), it is treated as its own command, which gives an exit code of 0
upon successfully creating the local variable. So local
is overwriting the last-executed error code.
Try this:
function testing { local test; test="$(return 1)"; echo $?; }; testing
EDIT: I went ahead and tried it for you, and it works.