 Soon after, the Spokane, Portland & Seattle Railroad began construction on a second railroad on the south shore of nearby Kahlotus lake, including tunnels through the basalt cliffs near the southeast corner of town.Kahlotus was officially incorporated on May 31, 1907.The town boomed during construction of the railroad, local legend claims that nearly 20 saloons, a bank, newspaper, brothels, and other businesses appeared to serve the rail crews.