When in a function in a Blueprint Function Library, dragging off a pin will not give the user the option to promote it to a local variable. You only have the option to make a global variable (which you cannot have in a library).
Right-clicking the pin gives you the local variable promotion option.
This seems to only occur in a function library. A function in a common class blueprint does not have this issue.
User has the option to promote to a variable, but not a local variable.
To be able to promote to a local variable.
There's no existing public thread on this issue, so head over to Questions & Answers just mention UE-94199 in the post.