This isn't a bug;  it's by design.

Because there's an assignment to 'a' in the function 'y', 'a' is considered local to that function.  (It doesn't matter where the assignment happens within the function;  the presence of an assignment anywhere is enough to make 'a' local for the entirety of 'y'.)

This is described in the reference manual at:

http://docs.python.org/reference/executionmodel.html#naming-and-binding

See the paragraph beginning:

"If a name binding operation occurs anywhere within a code block, "