diff --git a/gcc/cp/ChangeLog b/gcc/cp/ChangeLog
index 6201bdaa036..232acc6772b 100644
--- a/gcc/cp/ChangeLog
+++ b/gcc/cp/ChangeLog
@@ -1,3 +1,12 @@
+2016-05-23  Jason Merrill  <jason@redhat.com>
+
+	PR c++/70735
+	* pt.c (tsubst_copy): Just return a local variable from
+	non-template context.  Don't call rest_of_decl_compilation for
+	duplicated static locals.
+	(tsubst_decl): Set DECL_CONTEXT of local static from another
+	function.
+
 2016-05-23  Paolo Carlini  <paolo.carlini@oracle.com>
 
 	PR c++/70972
diff --git a/gcc/cp/pt.c b/gcc/cp/pt.c
index 2ce8f40f791..3e07fb0b6e0 100644
--- a/gcc/cp/pt.c
+++ b/gcc/cp/pt.c
@@ -12281,6 +12281,14 @@ tsubst_decl (tree t, tree args, tsubst_flags_t complain)
 	    local_p = true;
 	    /* Subsequent calls to pushdecl will fill this in.  */
 	    ctx = NULL_TREE;
+	    /* Unless this is a reference to a static variable from an
+	       enclosing function, in which case we need to fill it in now.  */
+	    if (TREE_STATIC (t))
+	      {
+		tree fn = tsubst (DECL_CONTEXT (t), args, complain, in_decl);
+		if (fn != current_function_decl)
+		  ctx = fn;
+	      }
 	    spec = retrieve_local_specialization (t);
 	  }
 	/* If we already have the specialization we need, there is
@@ -13992,7 +14000,8 @@ tsubst_copy (tree t, tree args, tsubst_flags_t complain, tree in_decl)
     case FUNCTION_DECL:
       if (DECL_LANG_SPECIFIC (t) && DECL_TEMPLATE_INFO (t))
 	r = tsubst (t, args, complain, in_decl);
-      else if (local_variable_p (t))
+      else if (local_variable_p (t)
+	       && uses_template_parms (DECL_CONTEXT (t)))
 	{
 	  r = retrieve_local_specialization (t);
 	  if (r == NULL_TREE)
@@ -14036,14 +14045,9 @@ tsubst_copy (tree t, tree args, tsubst_flags_t complain, tree in_decl)
 		  gcc_assert (cp_unevaluated_operand || TREE_STATIC (r)
 			      || decl_constant_var_p (r)
 			      || errorcount || sorrycount);
-		  if (!processing_template_decl)
-		    {
-		      if (TREE_STATIC (r))
-			rest_of_decl_compilation (r, toplevel_bindings_p (),
-						  at_eof);
-		      else
-			r = process_outer_var_ref (r, complain);
-		    }
+		  if (!processing_template_decl
+		      && !TREE_STATIC (r))
+		    r = process_outer_var_ref (r, complain);
 		}
 	      /* Remember this for subsequent uses.  */
 	      if (local_specializations)
diff --git a/gcc/testsuite/g++.dg/cpp1y/lambda-generic-static1.C b/gcc/testsuite/g++.dg/cpp1y/lambda-generic-static1.C
new file mode 100644
index 00000000000..a1667a2de47
--- /dev/null
+++ b/gcc/testsuite/g++.dg/cpp1y/lambda-generic-static1.C
@@ -0,0 +1,13 @@
+// PR c++/70735
+// { dg-do run { target c++1y } }
+
+int main()
+{
+  static int a;
+  auto f = [](auto) { return a; };
+  if (f(0) != 0)
+    __builtin_abort();
+  a = 1;
+  if (f(0) != 1)
+    __builtin_abort();
+}
diff --git a/gcc/testsuite/g++.dg/cpp1y/lambda-generic-static2.C b/gcc/testsuite/g++.dg/cpp1y/lambda-generic-static2.C
new file mode 100644
index 00000000000..51bf75f20ba
--- /dev/null
+++ b/gcc/testsuite/g++.dg/cpp1y/lambda-generic-static2.C
@@ -0,0 +1,19 @@
+// PR c++/70735
+// { dg-do run { target c++1y } }
+
+template <class T>
+static void g()
+{
+  static int a;
+  auto f = [](auto) { return a; };
+  if (f(0) != 0)
+    __builtin_abort();
+  a = 1;
+  if (f(0) != 1)
+    __builtin_abort();
+}
+
+int main()
+{
+  g<int>();
+}