Only ignore on compiler errors

src/EditorFeatures/CSharpTest/UseLocalFunction/UseLocalFunctionTests.cs

@@ -3507,6 +3507,45 @@ string S()
         return null;
     }
 
+    void Method<T>(Func<T, string> o)
+    {
+    }
+}");
+        }
+
+        [WorkItem(29793, "https://github.com/dotnet/roslyn/issues/29793")]
+        [Fact, Trait(Traits.Feature, Traits.Features.CodeActionsUseLocalFunction)]
+        public async Task TestWithDeclarationWarning()
+        {
+            await TestInRegularAndScript1Async(
+@"using System;
+
+class C
+{
+    void M()
+    {
+#warning Declaration Warning
+        Func<int, string> [||]f = _ => null;
+
+        Method(f);
+    }
+
+    void Method<T>(Func<T, string> o)
+    {
+    }
+}",
+@"using System;
+
+class C
+{
+    void M()
+    {
+#warning Declaration Warning
+        string f(int _) => null;
+
+        Method((Func<int, string>)f);
+    }
+
     void Method<T>(Func<T, string> o)
     {
     }

src/Features/CSharp/Portable/UseLocalFunction/CSharpUseLocalFunctionDiagnosticAnalyzer.cs

@@ -106,10 +106,10 @@ private void SyntaxNodeAction(SyntaxNodeAnalysisContext syntaxContext, INamedTyp
                 return;
             }
 
-            // If there are compiler diagnostics on the declaration we can't reliably
+            // If there are compiler error on the declaration we can't reliably
             // tell that the refactoring will be accurate, so don't provide any
             // code diagnostics
-            if (localDeclaration.GetDiagnostics().Any())
+            if (localDeclaration.GetDiagnostics().Any(d => d.Severity == DiagnosticSeverity.Error))
             {
                 return;
             }